7 things to know about pension reforms

pension reforms - 7 things to know


MoneyPlus Features Team

27th March 2015 at 1:46pm


Pension Reforms: 7 things to know

Standard Life’s Consumer Finance Expert Julie Hutchison shares the 7 things you need to know about the pension reforms from 6 April 2015.

Video Transcript

Julie Hutchison (Finance Expert)

“Here are 7 things you need to know about pensions and how they are changing on 6th April.


From age 55, you’ll have a range of options about how you’ll be able to use your pension if it’s the type pf pension where you save into your own pot. These options don’t apply if you have a fixed income pension linked to years of service.


There’s no rule that says you must take money out of your pension from age 55.  Many people work well into their 60s which gives you more time to save and a decade or more of potential extra growth.


There are 3 main options for how to take money out of your pension

  • Flexible income
  • Fixed income
  • Take the whole thing as a cash lump sum

With all options, 25% can be a tax free lump sum with the rest taxed as income.  This means you could pay 0%, 20%, 40% or 45% on what you take out of your pension.


If you choose flexible income, known as drawdown, you stay invested and take your money out gradually.  You can change the amount you take out and if you die before spending all of it, your pension savings can pass on to your loved ones.


A second option is a fixed income, called an annuity.  There’s no flexibility but the peace of mind of a guaranteed income will suit some people.  If you start with a flexible income, you can move to a fixed income later.


The third option is taking your whole pension as a cash lump sum. But don’t sleep walk into a tax bull as you could pay as much as 45% tax here.  And don’t fall into the hands of scammers who might cold call you, tempting you to cash in your pension and invest in something with suspiciously high returns.  Be on your guard against the fraudsters.


And finally, you might inherit more of a loved ones pension tax free from 6 April.  That’ s because the pension death tax of 55% is being scrapped.  If someone dies before age 75, with some types of pension, it will be passed on tax free.  And if someone dies after the age of 75, if you inheit a pension pot from them, it’s your income tax rate that applies to whatever money you decide to take out of that pension pot.

And that’s it for today’s pension update. You can keep an eye on developments on our MoneyPlus Blog or on Facebook and Twitter.

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