UK Pension Changes 2015

In the UK, pensions will be changing as of April 2015, read on to find out what it means.

As of April 2015 the UK will put into effect some changes to the ways pensioners can use their money, offering greater freedom than under the previous system.  Up until this time,  pensioners could take up to 25% of their pension pot tax free and with the remaining 25% had the following options:

Trivial Commutation - this only applies to those aged 60 and over who have overall pension savings of less than 18k.
Capped Drawdown - this allowed you to take an income from your pension with a maximum amount per year.  This limit would be based on 120% of an equivalent annuity.
Flexible Drawdown - with this option there is no limit to how much you can draw from your pot every year, but you must have a guaranteed income on excess of 20k per year when you retire.
Annuity - Under the current system most people end up buying an annuity, a bit like insurance, where a fixed amount is paid per year, usually for the remainder of your life.

Pension Freedom

Under the new system, from April 2015,  pensioners will be able to take as much as they want, with the first 25% remaining tax free as in the old system, any thing over this would be considered income and would be taxed accordingly. So, for example, if you have a pension of 100,000 you can draw down up to 25,000 tax free, anything over this would be taxed at the relevant rate (taking into account any other taxable income in the financial year).  See the table below for further examples:

 So, as you can see, this will offer people a lot more freedom with their pension pot.

For more detailed information on pensions visit Pensions Advisory Service.