Why you need to know about the new pension changes in 2015
Retirement is something that should be planned for over many years, ideally decades. This gives you the best opportunity to have an idea of how much money you will be retiring with. However, the government's new pension changes in 2015 could disrupt your retirement plan, so it's important to know what is changing.
Drawdown for the masses
Perhaps the most publicised change to pensions is the opening of pension drawdown to everyone, so that annuities will not be the only option, regardless of the size of your fund. Your retirement plan may have been focused on buying an annuity as your only sensible option, but after April you may decide it makes more sense to enter income drawdown because you prefer the death benefits or flexibility with your income.
Another key change is the introduction of flexi-access income drawdown. Capped drawdown will no longer exist for new members, which means that if you enter drawdown after April 6 you will not be able to choose it. With capped drawdown, your maximum income is based on Government Actuary Department (GAD) rates, whereas flexi-access drawdown has no limits on the amount you can withdraw. However, capped drawdown has an annual allowance of £40,000, but once you begin taking an income with flexi-access drawdown your annual allowance will only be £10,000. This may not affect a lot of people, but if your retirement plan included contributing more than £10,000 a year, it is something to be aware of.
New pension changes in 2015 removes the death tax
The death tax is being scrapped, which opens up new financial planning possibilities. Pensions were not traditionally the most effective way to leave money to a beneficiary because there was a 55% 'death tax' if the deceased was 75 or older. The new pension changes mean no tax is applied on death, but the beneficiary will pay their marginal rate on any withdrawals, so it is treated as normal income. There will be no tax charge at all if the deceased was under 75. This change also applies to fixed-term and joint life annuities, but not to standard annuities.
New rules on final salary transfers
The government also made changes to transferring from defined benefit (such as final salary) pensions into defined contribution (money purchase) pensions. It will still be possible to transfer out of a funded scheme, as there is a physical pot of money that can be moved. However, it will no longer be possible to transfer out of an unfunded defined benefit scheme, which will mean some people may need to make adjustments to their retirement plans.
Considering all options
Retirement planning is not something that you should do alone. We offer free, no-obligation regulated advice, and the government is also introducing Pension Wise, its free guidance service to point people in the right direction. However, it's important to remember that guidance is not the same as advice, as it only offers generic information. Regulated advice explains the most appropriate choices based on individual circumstances.
For more information on the new pension changes in 2015, visit our blog 'What the new pension rules mean for you.'
Have the new pension changes in 2015 affected your retirement plans? Let us know with a comment below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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