Home > Finance > Easy Guide to the New Pension Rules 2015

Easy Guide to the New Pension Rules 2015

By: Abigail Taylor - Updated: 22 Jun 2018 | comments*Discuss
 
Pension New Rules Annuity Lump Sum Rules

From April 2015 the rules relating to the use of your pension changed. If you are aged 55 or over, you are now able to access and use your pension pot in any way you wish. This is to provide you with more flexibility and choice about how your pension is used, and hopefully encourage more people to actively save and plan for retirement.

The new choices regarding your pension enable you to:

  • Withdraw 25% of the pot tax-free and then convert the remainder into a taxable retirement income
  • Withdraw 100% of the pot all at once - 25% will be tax-free and the remaining 75% will be taxed as a lump sum income
  • Withdraw 100% of the pot in instalments - 25% of each instalment will be tax free and the remaining 75% of each instalment will be taxed

Further, you will no longer be obliged to purchase an annuity (but this still remains an option).

What is an annuity?

An annuity is a financial product in which the total sum of your pension savings are invested, and a regular income is generated. An annuity quote will be expressed as a percentage, so the amount that you receive in income will be determined by the amount that you have invested.

Eg. Brian has a pension pot of £400,000. A 6% annuity would therefore give him an annual income of £24,000. Betty has a pension pot of £80,000. A 6% annuity would therefore give her an annual income of £4,800.

Even if you have started making withdrawals from your pension fund, you will still be able to continue to make savings and benefit from tax relief for doing so.

Other changes to the pension rules include an overhaul of the rules relating to pensions after death. Currently, any sum left in your pension fund passes to your beneficiaries after your death. Previously this sum was taxed at 55% (the "death tax"). Now, any payments made after 6 April 2015, (regardless of the pension holder's date of death) will be subject to the new rules. These are:

  1. The 55% death tax has been abolished.
  2. If you die before the age of 75, any sums invested in your pension will pass to your beneficiaries tax-free.
  3. If you die after the age of 75, your beneficiaries can:
  • Withdraw money from your pension fund in instalments, which will be taxed at your beneficiaries' usual tax rate, as part of their income.
  • Withdraw money from your pension fund as a lump sum this will be taxed at your beneficiaries' usual tax rate, as part of their income

Warnings following the changes

The Money Advice Service has warned pension holders that whilst you now have greater flexibility regarding what you do with your pension, it is important that you carefully consider what you do with your pension pot. Being able to withdraw 25% of the sum tax free is a substantial tax break. However before withdrawing a large lump sum, it is important to consider the retirement income that will be generated from the remaining sum - is this enough for you to live on? Will it cover your expenses? If not, how do you plan to pay any shortfall?

Pension Scams

Unfortunately fraudsters have taken advantage of confusion over the new changes to the pensions rules which has led to a number of pension scams. Pension scams could lead to you losing your savings, and you could also face a hefty tax penalty.

Avoid becoming the victim of a pension scam by following the tips below.

  • It is not usually possible to make withdrawals from your pension before the age of 55 unless you are terminally ill. If anyone says that they can helps you do so, particularly without asking for any information about your circumstances, this is almost certainly a scam
  • Do not deal with any financial advisor who is not registered with the Financial Conduct Authority for pension transfers
  • Do not deal with any cold callers, unsolicited text messages, or any door to door sales people, particularly if they pressure for a quick decision
  • Beware of any financial products marketed with the terms 'one-off investment opportunity', 'early pension release', 'pension loans', 'loopholes' or 'overseas investments'

If you think that you may have been the victim of a pension scam, contact Action Fraud at www.actionfraud.police.uk or call Action Fraud on 0300 123 2040 Monday to Friday 8am to 9pm, and at weekends, 9pm to 5pm.

Further advice

If you require further information or help with your pension options, you can obtain free advice from the Pensions Advisory Service on 0300 123 1047. Alternatively, seek advice from a reputable financial advisor.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Jane - Your Question:
My employer may not have paid the right amount of pension and said I opt out of pension but I have pruff that I did not and now I have been told I need to fill in form to get back in pention can you advise me please

Our Response:
Sorry we don't have enough information about your situation to advise effectively. If you didn't opt out of a workplace pension scheme but your employer says you did, you may be able to claim for the loss at an employment tribunal.
SafeWorkers - 25-Jun-18 @ 10:30 AM
My employer may not have paid the right amount of pension and said I opt out of pension but I have pruff that I did not and now I have been told I need to fill in form to get back in pention can you advise me please
Jane - 22-Jun-18 @ 6:47 AM
Share Your Story, Join the Discussion or Seek Advice...
Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Joe
    Re: General Workplace Safety
    Can I be forced to put my belongings in a unsafe locker
    5 December 2019
  • Reddwalf
    Re: Criminal Background Checks: CRB & DBS
    Hi, I want to work as a nursery assistant, but a few years ago my daughter made a false allegation that I threatened…
    5 December 2019
  • Sunny
    Re: Safe Working Temperatures
    Iam heart patient and having high blood pressure issues and iam on medication 4 tabs a day and i work full time at night shift and my…
    5 December 2019
  • Chris
    Re: Can my Employer Fire Me?
    I've had a shoulder injury for 3 years that happened before I started employment at my current job. For this injury I've been…
    4 December 2019
  • Dave
    Re: Lead Poisoning: Causes and Prevention
    Hi, Can anyone tell me whether the lead shot that falls on the ground as a result of shooting clay pigeons, is…
    4 December 2019
  • Calling Out The Corr
    Re: Violence at Work
    How do HM Revenue & Customs get away with bullying and harassing staff ?
    4 December 2019
  • Fred
    Re: Sickness: Your Rights
    I have been with my employer for over 11 years now. For the last 2 months I've struggled on and off with sciatica. I have taken the last 2…
    3 December 2019
  • Steve
    Re: Employer Has Changed My Shifts: What Are My Rights?
    My employer has got me starting my first two days on nights then a day of rest then next three days…
    3 December 2019
  • Mr T
    Re: Guide to Your Rights When Working Alone
    If you are not using a lone worker devise and checking via say a raido, is there a maximum time limit to monitoring?
    3 December 2019
  • Anon
    Re: Violence at Work
    What about psychological bullying such as what I suffered for about a decade working for HM Revenue & Customs? A bullying manager sent her…
    2 December 2019