The Main Pension Changes in the April 2015 Budget

After telegraphing the planned changes in his 2014 Budget, the Chancellor introduced a raft of new changes in 2015 that have opened up the UK retirement planning market as never before. It was no exaggeration when Mr Osborne described the changes as “the most radical change to how people can access their pension in almost a century”.

Introduction of Pension Freedom

Under the new rules, From April 2015, everyone over the age of 55 with defined contribution pension savings will be able to access them as they wish, regardless of their total pension wealth.
(Any withdrawals in excess of the tax-free amount will be taxed as income at the scheme member’s marginal rate. Hence, any pension income drawn will be added to any other income they receive for tax purposes.)

Under the new rules, most pension investors aged 55 or over now have complete freedom to take whatever level of income or cash lump sums they choose. They have the freedom to:

• Take their whole fund as cash with 25% paid tax free and the remainder taxed as income;
• Take smaller lump sums whenever they please with 25% tax free and the remainder taxed as income;
• Take up to 25% tax free and use the remainder to generate a regular taxable income, through drawdown or an annuity, either immediately or later down the line.

Other important pension and retirement planning changes included:

• While annual pension contributions are subject to a £40,000 ceiling for most people, a new £10,000 pa allowance was introduced for people who have ‘flexibly accessed’ a pension;
• Previously, those who had taken flexible drawdown prior to 6 April 2015 were barred from making further pension contributions but this ban has now been lifted subject to the new annual allowance above;
• The abolition of the 55% ‘death tax’ and new rules for the passing of pension assets to beneficiaries;
• The removal of tax liabilities on lifetime annuity benefits that are passed to beneficiaries for those who died before age 75 on or after 3 December 2014 for lifetime annuities with joint-life, value protection or a guaranteed period (assuming the first income payment was made after 5 April 2015;
• The introduction of a free pension guidance service called Pension Wise, which is provided by the Citizens Advice Bureau and the Pensions Advisory Service;
• A new £40,000 allowance was effectively introduced for contributions made from 9 July 2015 to 5 April 2016;