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Pension changes: your questions answered

New freedoms were introduced six months ago

retired couple on mobile phone

It’s been six months since consumers were granted new pension freedoms by the government but our Which? Money Helpline team continues to field hundreds of queries on pensions every month.

Here, we highlight the most commonly asked questions about the pensions freedoms with answers from our experts. 

The majority of these queries are from Which? members wanting to understand what their options are in the light of the new flexibilities.   

Find out more: Call the Which? Money Helpline – get a personalised answer to your financial query

How does drawdown and tax work?

You can withdraw the first 25% of your pension tax-free, either at the start of the plan or as a tax-free slice of each withdrawal. The remaining withdrawals are subject to income tax.

Which? has created a calculator to show you how much tax you’d pay if you took your whole pot, or a chunk of it, as a lump sum.

Find out more: Tax on pensions – calculate your tax bill

I am already drawing my annuity. Can I cash it in?

The team continues to hear from members already drawing their annuity who want to cash it in. 

At the moment, they can’t do this, although the chancellor has announced plans to make this possible from 2017. 

It is not yet clear exactly how it will work, although it is believed that what you get back is likely to be considerably less than what you used to buy the annuity, as it will take into account the amount of time you have been receiving an income and the fact that you are older and possibly in poorer health. 

Find out more: Annuities explained – the pros and cons of your annuity options

Should I transfer funds from a final salary pension? 

Our experts have taken lots of calls from people considering transferring funds to a defined contribution scheme to take advantage of the new pension freedoms, rather than accept the guaranteed annual payment provided by final salary schemes. 

However, there are lots of disadvantages of transferring out of a final salary scheme too. Other than in some specific circumstances, our experts say that no-one should consider it without taking financial advice from an adviser specialising in this area.

Find out more: Transferring your final salary pension – the pros and cons

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