There are a number of changes to the taxation of pensions from next month. We have copied into this article postings to the GOV.UK website regarding some of the more significant options available from April 2015.
What happens to your pension when you die?
Instead of paying the 55% rate of tax when passing on their pension, people who die under 75 with defined contribution pensions can from April 2015 pass on their unused pension as a lump sum to a person of their choice tax free.
At the Autumn Statement 2014, the Chancellor also announced that from April 2015 payments from certain kinds of annuities that pay out income after you die (joint life and guaranteed annuities) will be tax-free when paid to a beneficiary, if the original policyholder dies below age 75.
For people who die over the age of 75 with unspent defined contribution pensions, they can pass this on to a person of their choice who will be able to take it as a lump sum taxed at 45% or as income and pay their normal rate of income tax.
Withdrawals from your pension
From April 2015, no matter how much you decide to take out from a defined contribution pension after retirement, withdrawals from your pension will be treated as income; the amount of tax you will pay on what you withdraw will depend on the amount of other income you have in that year, as long as you are 55 or over. . This is instead of being taxed 55% for full withdrawal, as it has been previously.
Most people will still be able to access 25% of their pot in one go without paying any tax.
When can you take advantage of the new pension withdrawals?
If you are over the age of 55, or will be from April 2015, you will be able to take advantage of the new system from then, subject to your pension scheme rules.
If you’re younger than 55 then you will be able to take advantage of the new system when you reach normal minimum pension age under the tax rules (this is currently age 55).
If you are over the age of 55, or will be from April 2015, you will be able to take advantage of the new system from then, subject to your pension scheme rules.
If you’re younger than 55 then you will be able to take advantage of the new system when you reach normal minimum pension age under the tax rules (this is currently age 55).
Before making any decisions on your pension pot you should take proper advice.
Pension providers or schemes will be required to tell people about the guidance service in the information they send to people when they are approaching retirement. This guidance will be available through a number of different channels – via the internet, over the phone, or face to face at a Citizens Advice Bureau.
It will be entirely impartial, so won’t be given by anyone who could be trying to sell you a product.