Draft legislation that sets out the pension reforms announced at the 2014 Budget has now been published.
The Taxation of Pensions Bill will change the tax rules to allow over 55s to access their defined contribution pension pots with more flexibility from April 2015.
Under current rules, savers who want to take their pension as a lump sum take 25% of their pot tax-free and put the remaining 75% in a drawdown account. Any amount withdrawn from the drawdown account is then taxed at the marginal rate of income tax.
From April 2015, there will be the option to take multiple lump sums from a pot without having to open a drawdown account. 25% of each lump sum will be tax-free and the remaining 75% will be taxed at the individual’s marginal rate.
Reaction To The Draft Legislation
Matthew Pitcher, senior client partner at Towry, said:
“Extra flexibility brings extra responsibility. It is vital that retirement funds are not just frittered away. Everyone should have some form of long-term financial plan in place, tailored towards their specific goals and ambitions, and a pension is supposed to last you for life, not just to be largely spent at the point of retirement.”
Paul Green, director of Saga, said it was “heartening” that the Chancellor was allowing pension savers the chance to be more flexible.
Kate Smith, regulatory strategy manager at Aegon, said:
“As the name suggests the new uncrystallised funds pension lump sum comes with complexities and consumers need to think very carefully as to whether this is the right option for them next year. This isn’t the same as accessing a bank account, it’s a long term savings plan, invested in a range of investments.”