The new pension regulations reflect the Government’s vision for a more flexible regime giving individuals more choice, responsibility and control over how they and their family access their pension savings.
One of the biggest effects of the new rules is what happens to your pension fund when you die. The potential tax charge on death is reduced from 55% to zero. After April 2015, if a Defined Contribution (DC) pension investor dies before reaching age 75 funds can be taken tax free at any time either by instalments, or in a one-off lump sum.
If death occurs after age 75 a DC pension fund can be taken in instalments and will be taxed at the beneficiary’s marginal rate (broadly the highest rate at which income tax is paid). Alternatively a lump sum less tax at 45% (or their marginal tax rate from 2016/17) can be taken.
The new flexibility will also allow all DC pension investors aged 55 and over, to choose how they want to take their pension income. They can convert the fund into an income, with the flexibility to change the amount taken each year and leaving the rest invested. Alternatively they can elect to take the whole fund as a lump sum. In each case, there will be a potential tax liability.
If the changes affect you, seek financial advice to explore your options. The free ‘guidance guarantee’ offered by the Government may be a good start, but it is not advice and is not tailored to your specific needs.
