What are the new pension rules?

Big changes in 2015 removed many of the restrictions around how people could access their pensions. Now you have more flexibility and more choice than ever before.

The quick and easy guide to the new pension rules

This guide will help you to understand what the new pension rules mean for you. It contains some key facts and information to consider, and answers some of the most common questions we are asked.

The headline facts at a glance

Big changes were introduced in 2015, making UK pensions more flexible than ever before. If you have the right kind of pension you can now access your entire fund and use the money however you like. You can still take 25% of your pension tax free, and as you may have guessed anything over this amount is treated as income. There are also changes on leaving your fund to someone when you die and new limitations on how you can access money from some public sector schemes.

Let’s get started by looking at what these new rules could mean for you.

Which types of pension do the new rules apply to?

All private pensions and some employee schemes. If you have what is known as a final salary scheme then you will need to switch to a private pension before you can take any money from it. These types of pension usually include very generous benefits, so it’s not a decision to be taken lightly.

If you have a certain type of public sector scheme, called an unfunded pension, then you cannot take money as and when you like, although you will still get a guaranteed income for life. If you are a teacher or work in the NHS, armed forces, emergency services or civil service then you may have this type of pension. If you are unsure, your HR department should be able to tell you.

Can you still buy an annuity?

Yes, you certainly can. The new pension rules are about giving people more choices, not taking them away. Many people like the security of knowing how much money they will receive every month for life, and if this sounds like you then the good news is annuities are still available.

Can a pension be left to someone else?

Private pensions and many workplace schemes can be passed on, and the government has now removed the 55% ‘death tax’. If you die before the age of 75 your pension can usually be passed on completely tax free. If you’re older than 75 when you die, the recipient will only pay income tax if they take money out.

It’s worth bearing in mind that by purchasing an annuity you are selling your pot in exchange for an income for life, so there is no pension fund to pass on. Some annuities can provide an income to a family member after you die, although this could reduce the amount of money paid to you.

How much will the taxman get?

You can take a quarter of your pension fund tax free, and anything else is treated as income. This means it’s added to any other earnings you have in that year, so you could be pushed into a higher tax bracket – up to 45%.

These new pension rules offer more choice than ever before and it’s best to talk to a regulated financial adviser before making a decision so you are sure it’s the right one for you. We have already helped thousands of people to make the best decision with their pensions and it won’t cost you a penny to find out what we think is right for you.

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More information…

The new pension rules give people more choices than ever before. This guide has provided an introduction to them and we have also answered some of the most common questions people have below. If you still have any questions at the end then you might prefer to talk to us on the phone instead of trawling through lots more text for answers.

Can I take all of my pension as cash?

If you have the right type then yes you can. And you can use that money however you like, whether that’s starting a business, clearing the mortgage or helping a family member. Whatever your plans are, it’s important to remember that taking money out of your pension could mean you have less to live on later in life, so there’s a lot to think about.

If you have a small pension that won’t provide much income and cashing it in would help improve your life now, you may be comfortable doing that. For lots of people, though, it’s a much bigger decision with the potential for a big tax bill, so it’s best to talk to a financial adviser first.

I already have an annuity, do these rules affect me?

Not at the moment, although this is going to change. It has been announced that from April 2017 flexibility will be given to people who already have annuities. More details are expected before then, and if you sign up to our regular newsletter we will keep you updated of any changes.

How do I take an income when I retire?

If you are happy to sell some or all of your pension pot then you could buy an annuity, which promises you an income for life. The main alternative is taking money directly from your fund, and you can either do this whenever you need to or you can arrange to receive regular payments. This gives you the flexibility to adjust how much you take based on your needs, although there’s also a risk that you could run out of money. If you have a large enough pension it’s possible to mix and match, buying an annuity with part of it to cover your bills and then taking extra directly from your fund as you need it. For the first time ever, the choice is entirely yours

Call 0800 304 7288 for a friendly chat about your pension

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Frequently asked questions

Important information

A quick reminder that the tax you pay depends very much on the current rules and your personal circumstances, and so could change in the future.

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