The Chancellor described the pension changes as “the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921”, with the relaxing of rules surrounding annuity taking centre stage.
The new rules will come into effect in 2015, however other changes are coming into force today.
What’s changing today?
One of the key moves is that the Government has increased the amount of ‘pension wealth’ that can be taken out as a lump sum. Previously, if you had under £18,000 in your private pension pot – you could take it out as a lump sum and you wouldn’t be forced to buy a pay-out from an annuity. A quarter of the amount would be tax-free, while the rest would be charged at your marginal rate of tax.
From today however, this amount will increase to £30,000. This amount is considered average for those looking to retire now – offering a more flexible way of getting your funds.
Previously, if you had more than one pension pot, you could take out two lump sums – but as of today this will increase to three. Also, the amount you can take out through more than one pot has increased, meaning that if you have three pots of £30,000, you now have as much right to take it out as a lump sum as those with one pot of £30,000.
What’s changing in April 2015?
In April there will be annuity freedom – meaning that after the age of 55, you will be able to get the entirety of your pension at any time. Experts say that advice will be crucial and that those who are planning to retire before April 2015 should consider putting it off so they can make the most of the changes.