Savers will have greater freedom in how they take their pension, under new rules published in the Taxation of Pensions Bill today.
The Bill covers previous announcements that will allow savers with defined contribution pensions to take a series of lump sums from their pension fund. And it was revealed today that each time people dip into their fund, they’ll be able to take 25% of the withdrawal tax-free, with the rest taxed according to their income.
It’s likely that many pensioners will choose to take small amounts from their pots when they require, as they would with their bank account, while opting for income drawdown to allow the remainder of their fund to grow in the meantime.
Previously, they were were forced to buy another product, usually an annuity, after taking 25% of the fund tax-free at the outset.
Last piece of the puzzle
The unveiling of the Pensions Bill is the latest of a series of announcements since the 2014 Budget that will transform the pensions landscape.
Which? has a series of guides to help you negotiate the new environment:
Guidance is required
The greater freedoms involved in the pensions reforms will lead to increased responsibility on individuals to make complex decisions.
Which? executive director, Richard Lloyd, said: ‘The additional flexibilities will be welcome news for people saving in to a pension but the right to quality guidance will now be of greater importance and it will be crucial that all those involved in the reforms work together to put in place a consumer-friendly system.
‘Guidance should cover every single one of the available options and take into account all of the individual’s retirement income, savings and investments.’