Pension changes come into effect

A new era in pensions began this month.  But what exactly does it mean for you and your retirement?

The pension changes announced by the Chancellor in the Autumn Statement were the most significant shake up to the system for decades.  The changes begin to come into effect this month, and will affect the financial planning of everyone who intends to retire at some point in the future, which is all of us who are still currently working!  So here’s everything you need to know about the changes and what they mean for you.

The good news

• Unlimited lump sums: From this month you draw down as much or as little as you want from your pension pot, though the income will still be subject to tax.
• More choices: The new lump-sum withdrawal option – 25% tax-free and 75% subject to income tax – has been added to the existing choices of annuitisation (investing in a scheme so you get an annual income, or annuity), drawdown and tax-free cash when individuals take their benefits.
• Reduced inheritance taxes on pensions: The 55% tax due on residual pension pots on the death of the pension holder has been removed in some circumstances.
• Benefits for spouses: If you continue to receive annuity income after the death of your wife or husband, you will now enjoy the same tax breaks as they did. 

The not-so-good news

• Tax loophole closed: New rules have been introduced to prevent people from exploiting the new system for tax reasons.  The quick among you will have worked out that the new system could have made it possible to make contributions that attract tax relief and then immediately make lump-sum withdrawals, a proportion of which would be tax-free.  But the Chancellor spotted this loophole and has restricted tax relief for people who access a pension under the new flexible rules: you will only receive tax relief on contributions of up to £10,000 gross each year afterwards. There are limited exceptions.

Something to bear in mind for the future

• Increased minimum pension age: Most of the changes to pensions are taking effect from this month.  But the Chancellor gave us an early heads up that the minimum pension age will increase from 55 to 57 from April 2028 onwards.  You have been warned!

FOR EXPERT PENSIONS ADVICE: 

call Graham on 07740 192505 

or email gkinns@coreifa.co.uk 

to book a no-obligation consultation at our expense