The Government is continuing to make changes to the rules on taking pensions, with further new proposals announced in the Taxation of Pensions Bill 2014, published in mid-October.
Under the new proposals, which are set to take effect from April 2015, anyone who dies before they turn 75 will be able to pass on their remaining defined contribution pension to any nominated beneficiaries completely free of tax, whether it is in a drawdown account or untouched – provided it is paid out in lump sums or taken through a ‘flexi access drawdown account’. The new proposals do not apply to annuities or scheme pensions.
This is a major improvement on the current rules, where an onerous 55% tax charge applies to drawdown pension funds if passed on as a lump sum on death.
The same 55% tax charge also currently applies to untouched pensions after the age of 75, but under the new rules anyone who dies with a drawdown arrangement or with untouched pension funds at 75 or over will be able to nominate a beneficiary to receive their pension. The nominated beneficiary will be able to access the pension funds flexibly, at any age, and pay tax at their marginal rate of income tax. There will also be an option to receive the pension as a lump sum payment, subject to a tax charge of 45%.
At the same time, the government is proposing to change the rules on taking pensions as a lump sum so people will be able to take a series of lump sums instead of only one. Under the current tax rules, people who want to take their pension as a lump sum would take 25% of their pension pot free of tax and then place the other 75% in a drawdown account. Any money they take out of their drawdown account will be taxed at their marginal rate.
Under the new rules, individuals will have the ability to take a series of lump sums from their pension fund, with 25% of each payment then free of tax and 75% taxed at their marginal rate, without having to enter into a drawdown policy.
With pensions saving clearly now a major focus for politicians and thus in a state of some flux, it is well worth considering seeking expert advice on your individual circumstances. If you have any queries on how you will be affected by the new rules, please contact Emma Greer on e-mail: firstname.lastname@example.org or mobile: 07885 407604.
The value of your investment can go down as well as up and you may not get back as much as you originally invested.