The most wide-ranging changes to pensions in many years were announced as part of this year’s Budget. The changes affect individuals that have pensions savings in a defined contribution (DC) scheme, such as a personal pension.
The changes, which will come fully into effect from April 2015, will give savers the choice of whether to purchase an annuity or to make withdrawals from their pension pot. This can be for up to the full amount of money held within their pension pot. The current rate of 55% for full withdrawls will be reduced with savers allowed to use a flexible drawdown plan whilst being taxed at their marginal rate.
The Government has also proposed offering all DC scheme holders free and impartial guidance on the options available at retirement. There are also proposals to increase the age at which pension savings can be accessed from 55 to 57 (from 2028).
Draft guidance has recently been published by HMRC on the transitional changes to the pensions rules that became effective on 27 March 2014 to 6 April 2015. These special rules are temporary and are relevant to taxpayers that take their pension commencement lump sum ("PCLS") before 6 April 2015 and the associated pension before 6 October 2015. The guidance relates only to the temporary changes and does not cover the changes that will take effect from 6 April 2015.