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New Rules on Personal Pensions

From April 2015 there are new rules on how much you can withdraw from your personal pension. Read on to find out more.

You may have heard that the Chancellor of the Exchequer has introduced new rules about withdrawing money from a pension.  There have been press reports about people being able to blow their pension pot on a Lamborghini.

From 1 April 2015, if you have saved into a defined contribution (DC) pension, for example, a Personal Pension Plan or a Stakeholder Pension Plan, you will have access to the entire fund from the age of 55. The current rules say that this age limit will go up to 57 in 2028 and will increase with the state retirement age. So you have to be careful if think you will you need to access funds before this date. Governments can alter the state retirement age so there are no guarantees that if you are 57 in 2028 you will have access to your pension pot. Under the new rules you can still purchase an annuity if it suits you, extract all of your pension savings in a lump sum, or keep your pension invested and access it over time or any combination of these options that you want to choose.

It is crucial that you are aware of the tax implications of withdrawing your funds. You can still withdraw 25% of your pension pot tax free, but you will be charged at your marginal rate of income tax on any further withdrawals. This could push you into a higher-rate tax band for the year. You may want to withdraw the money more slowly in annual lump sums to limit tax.

What should I use it for?

You could put your money into other investments, such as buy-to-let property, but equally it could involve paying down debt. We would recommend you take advice

You can still buy an annuity to guarantee an income for life. This could still be a valid choice depending on your circumstances.

What if I have already taken a pension income?

If you have already purchased an annuity already, you will be tied to that contract. However, if you have already gone into income drawdown, you will be able to increase your income by calling an emergency "review" with your pension provider or financial adviser. However, this can only take place on the anniversary of the last review.

To help people make the right decision, from April 2015, the government has said that everyone approaching retirement with a defined contribution pension will be offered ‘free and impartial face-to-face guidance on the range of options available to them.’  This will be with a government appointed provider, such as the Pensions Advisory Service, or the Citizens’ Advice Bureau.  The details of this are still to be finalised.

Temporary arrangements until April 2015

From 27 March 2014 until 1 April 2015, there are temporary arrangements to give savers aged 55 and over greater access to their pensions. How much you can withdraw will depend on a variety of factors, including how big your pension pot is. You have to be careful about the tax implications of withdrawing funds from your pension.

With all this complexity, we strongly advise that you seek advice from a qualified financial adviser. Pensions are part of your overall financial health and cannot be looked at in isolation. If you would like to speak to an LGBT-friendly financial adviser about personal pensions or any other financial matter, please enter your postcode under the map on your right to find an adviser near you.

Additional Reading

  • Personal Pension Plans

    Read our guide to personal pension plans and make sure you are saving in the right way to afford a comfortable retirement.
  • Pensions Glossary

    Our pensions glossary simply highlights the key terms you will hear or need to understand when talking about pensions in the UK.
  • Property as a Pension

    Thought about using property as a pension for your retirement? If you are, why not read our guide and contact us to speak to one of our advisers.
  • Why Have a Financial Adviser

    Why bother with a financial adviser? We explain the risks of doing it yourself. Find LGBT-friendly financial advisers on our site.
  • Claims from Ex-partners

    How do you take into account financial claims from ex-partners? Get some sound advice from our IFA's to help ensure you are protected.

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