12 Aug Pension reforms update
The new pension reforms came in to effect on 6 April 2015. The changes have meant that over 500,000 people aged 55 and over can take advantage of the freedom rules for accessing pension savings. The new rules allow people to access their pension pots in new ways and decide how to use their defined contributions pension savings.
There are three main options available, lifetime annuity, flexi-access drawdown and a lump sum payment. These options can be used on their own or in combination. New figures published by the Association of British Insurers (ABI) have revealed that more than £1.8 billion was withdrawn from pension funds during the first two months that the pension freedoms were in effect.
The ABI data shows:
- Savers have taken out over £1billion in 65,000 cash withdrawals from their pension pots. The average pot taken was £15,500.
- Savers have taken out £800m worth in payments from income drawdown policies in 170,000 withdrawals.
ABI’s Director for Long Terms Savings Policy, Dr Yvonne Braun comments:
'This is an important reminder that tens of thousands of people are successfully accessing the pension freedoms as intended and on the whole the industry has risen to the challenge of giving customers what they want.'
The first 25% of a lump sum payment is tax free. The amount of tax to pay on the balance of any pension withdrawals depends on the amount of payments that are received in the tax year plus any other taxable income. Individuals will also be able to pass on their unused defined contribution pension funds to a nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies.