Withdrawing Your Retirement Savings: New Pension Rules Afford Greater Freedom For Retirees

In a bid to give people over 55 years of age greater control over their pensions, the Government is allowing retirees to withdraw freely from their retirement funds.

New proposals set out in October’s Pension Tax Bill indicate those aged 55 and over will be able to withdraw multiple lump sums from their pensions. Currently pensioners can only withdraw 25% from their pot without being taxed. They can place the remaining 75% in a drawdown account, where it can be used to buy an annuity; it is otherwise taxed at their marginal rate should they choose to access it.

With the changes in effect from April 2015, retirees will be able to take out as much as they like, when they like, with no drawdown policy needed. The first 25% will be tax-free, though any remaining drawdowns will be taxed at the marginal rate.

The reforms are part of a drive to allow pensioners’ greater flexibility and choice over what they do with their retirement money. The new rules are expected to reduce the number of people using their pension funds to buy annuities.

According to Chancellor George Osborne, the plans will provide freedom for people to access their defined contribution (DC) pension as they choose. He said: "People who have worked hard and saved all their lives should be free to choose what they do with their money."

New pensions ruling and inheritance tax

The Chancellor also announced that from April 2015 people will have the added ability to pass their unused defined contribution pension to their children and grandchildren when they die. The 55% pension inheritance penalty tax will also be abolished for some groups.

While some experts suggest the reforms may encourage poor planning for the future, others feel that trusting pensioners with their own money is a move that is long overdue.

Contact IBB's experienced wills and trusts solicitors and inheritance tax advisors today to discuss your inheritence tax, pension tax and estate planning issue. Call us today on 01494 790002 or email jacqueline.almond@ibblaw.co.uk.