Pension Changes in 2015

More Flexibility with Age

Since 6th April 2015 there is now much more flexibility individuals will have to access their pension savings from the age of 55. The Pension Schemes Act 2015 will implement a range of changes to existing legislation to reform work place pensions. The key changes includes giving people access to their entire pension pot from the age of 55 onwards, removing the need to buy an annuity to provide income until you die, giving access to invest and draw down schemes previously restricted to wealthier savers and the axing of a 55% death tax on pots left invested.

Savers will not be limited to take a single tax free lump sum worth 25% of their pension pots, instead people will be able to dip in and make withdrawals as required each time getting 25% tax free and the rest taxed like income. The changes apply to people with defined contributions or money purchase pension schemes which take contributions from both employer and employee and invest them to provide a pot of money at retirement but not to those with “final salary” pensions which provide a guaranteed income after retirement.

Individuals can use income draw down to fund retirement instead of buying an annuity. Income draw down schemes allow you to take sums out of your pension pot whilst the rest remains invested.

If your spouse dies before reaching the age of 75, you will get annuity income from the deceased’s pension tax free. People may be tempted to use their retirement savings to acquire buy to let properties but are advised to weigh the tax implications carefully as the money shelled out upfront to HMRC could prove a significant drag on return.

Since April 2015 pensioners now get a 2½ percent increase in their basic state pension to £115.95 a week. For those retiring after April 2021 there will be a flat rate pension of between £144 and £155 a week. For those retiring within the next five years there is a pension statement service available which informs people what they are likely to get and ways to boost it before they retire.

People above the age of 65 and wish to save may put money in pensioner bonds in order to get market beating interest rates. A one year fixed rate bond from Government-backed National Savings & Investments will pay 2.8% while a three year bond offers 4%.