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What do the new pension reforms mean for you?

Unless you’ve spent the last few weeks hibernating, it’s highly unlikely you’ll have missed the recent media coverage on pension reform – not to mention financial experts’ concerns about people merrily cashing in their pension pots and running out of money in retirement.

If you’re approaching retirement age and haven’t yet grasped the detail of this week’s changes and what they mean for you, don’t worry – you’ll find a quick summary below and links to our website with more detail, including information on where to get free guidance or financial advice.

So what’s changed?

Previously, when you retired, you had to turn a contribution-based pension pot into a retirement income after taking your tax-free lump sum. However, from 6 April 2015, you can you use your pension pot any way you like. In practice this means the following key options:

  • Buy a guaranteed income for life – an annuity.
  • Invest your pot in funds designed to provide you with a flexible. retirement income – called ‘Flexi-access drawdown’ (not guaranteed for life).
  • Take small cash sums from your pot.
  • Take it all as cash in one go.
  • Mix the above options.

With the cash options you get 25% of the withdrawal tax-free. If you choose the annuity or flexi-drawdown options you can take up to 25% of the pot used for that option tax-free. The rest of the income is taxable.

If mixing your choices you can:

  • use different parts of one pension pot
  • use different pots for different options
  • combine smaller pots for one or more options.

Not all providers will offer all options – but you have the right to shop around.

Is this all too good to be true?

While these freedoms are welcome they also come with risks – not least that you could land yourself with a large tax bill and/or run out of money in retirement by making the wrong choice. You could also lose your right to certain benefits.

What’s right for you will depend on your personal and financial circumstances, your life expectancy, the size of your pension pot and any other income or savings you have.

Free guidance from Pension Wise

The good news is that everyone aged 55 or over is entitled to free and impartial face-to-face or telephone guidance from the government-backed Pension Wise service. Before you decide what to do we recommend you make them your first port of call and then get financial advice.

 

Watch out for pension advice scams

Pension advice scams are growing in the UK, with increased reports of cold calls or advertising targeting people close to retirement and offering ‘free pension reviews’. Don’t be fooled – their sole aim is to get their hands on your cash. You could lose all your money or be landed with a large tax bill. Check out our blog post how to spot and avoid pension scams.

What do you think?

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  • Lynda Saran / 24 August 2015

    I will be 60 in October but my Railway pension insists I take my pension. I am on benefits and want some advice as to what to do.

  • Dr Jayanti Desai / 12 July 2015

    This is a good useful source of help provided provisions
    and options are enforceable in the interest of pensioners.
    As a retired pensioner I have been victimised by so called Court of Protection in fact Court o Persecution
    depriving pensioners of rightful use of pension to have access to their pension income

  • Julian fisher / 6 July 2015

    I have got seeps and due to I'll health behind bad the gave he 25% and an anuauity which is 112.00 a year I took 1425.09 can u help could I make the full of the rest as I've not been working for ten years

  • Emmanuel Kofi Agbeko Dzorkplenu / 20 June 2015

    I now 54 years and has £32,000 pot. My pension provider Pension Trust was going to release to me about £20,000 on 6 July but change this decision for two reason 1st my pension pot is more than £30,000 and I am not 55 years, so they cannot pay me the money. So I am for a help to cash some money quickly.

  • Veronica Dunn / 18 June 2015

    When can I cash in an annuity

  • Terry Dee / 1 June 2015

    Think - If a million people take the wrong route they will pay x amount + plus income tax with little or no recall - of course the government want people to take the pot - its already becoming worth millions to them in income tax - surely the people that do take the pot will end up in a few years time thinking "oh what have I done" ,. - I thought about this many years ago when I became a pensioner - Im really glad that this stupid idea was not on the table then - think once think twice and on the third time just take the tax free cash lump - put the pot where it will generate a few hundred every month - think - with the whole pot taken you can take the kids on holiday a couple of times maybe - perhaps a new motor - renovate the house - whoops its all gone - and dont say that wont happen - it can and will - with a pension coming in every month for life - you can take the kids on holiday several times a year - super deals on cars that the pension will pay for monthly - put a bit aside every month and renovate on a budget - think once think twice think three times - buy the annuity people - don,t spend it that,s why most MP,s smile all the time - its called a 'gotcha' grin - think.

  • David Arnold / 18 May 2015

    Why cant I find advice for me Im 67 and have a private pension Im told I cant withdraw any lump sums due to my pension not being uncrystallised. All the sites are complicated and do not take a person my age into account, if the new rules dont apply to a person over 65 why do, s it not say so from the start. Thankyou

  • D Byrne / 14 May 2015

    I have two separate pension pots, can I take 25% of each one tax free in the same year??

  • Rodney Coffin / 24 April 2015

    I am in receipt of a small annuity paying me £17.10 PCM after tax deduction, I am now 68 years of age and have been drawing this for 2 years and 3 months. I wish to know whether I can draw the remains of this money from the pension fund, this sum must cost more to administer than it's value!
    -----------------------------------------------------------
    ADMIN: Hello, you cannot change your annuity back into a pension pot, however the Government has announced changes due to come into force from April 2016. They will allow you to sell your annuity for a cash lump sum on which you will pay Income Tax at your highest rate.

  • Mark Edgecombe / 21 April 2015

    Speaking to my current pension providers, both state that to take advantage of the reforms, I will need to transfer my funds to a new provider! Isn't this a blatant disregard of the law? What is the government doing to enforce pension schemes to comply with the legislation?

  • Steve C / 21 April 2015

    My view is that there will be a lot of people who make the wrong choice because they will only see cash today and tomorrow can wait. Many will not have the education in finance to be able to understand the whole situation. May be I am a bit cynical but I view this as back door taxation by the chancellor and putting money into the governments coffers quickly. I have just a few years before my retirement age and think I will wait a bit an see what to do when the dust has settled.

  • JONATHAN / 20 April 2015

    This is like setting traps for the for pensioners. The scams will be there without doubt. what happens when a pensioner lost all his pension? The state has a duty to look after the pensioner. This is Inviting problems for the state. WHY CHANGE SOMETHING THAT IS WORKING WELL? Is this designed to make someone win votes at the expense of pensioners?

  • Mary / 20 April 2015

    I was told that I had to buy an annuity because my pot was worth just over £18,000 so I left it and now a few years on its worth around £21,000. I intend to take 25% tax free and pay tax on the rest. The annuity, if I took it, will prevent me from applying for any possible benefits. I shall use the money to do remedial work on our home, work that we could not otherwise afford to have done.

  • Alan Speer / 19 April 2015

    Very informative, but not sure whether one of my pensions which is classed as drawdown using old GAD. I intend to open (employing an F.A's fee stipulated unfortunately, as apparently I cannot ask my pension provider to do this) a Flexi-access and invest my pot in same funds. I don't know whether this old Protected Rights plan will still be subject to 25% tax free as you do not mention this type of contracted-out pension.
    -----------------------------------------------------------------
    ADMIN: Hello Alan, your best option is to seek individual guidance for your own personal circumstances. You can make a phone or face-to-face- appointment via the government's Pension Wise website https://www.pensionwise.gov.uk/appointments

  • William Gray / 19 April 2015

    Concerned as I am now just 65 but already receive small pensions since I retired in 2012. The new rules seem to benefit new Pensioners.
    How can take money out to already existing pension annuities.