Major pension reforms came into effect on 6 April 2015. Savers have already taken advantage of the pension freedoms to access over £6 billion from their pension pots. Since April this year, over 159,000 people have accessed over £1.7 billion in this way.
The pension rules allow, those aged 55 and over new opportunities to access their pension pots and new choices as to 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.
The new Economic Secretary to the Treasury, Simon Kirby said:
‘Our pension reforms have already given hundreds of thousands of people access and responsibility over their hard-earned savings and we will continue to make sure that the pension freedoms work well for everyone.’
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.
Since the pension reforms came into effect, the government has also announced that they are working to introduce a cap on early exit fees. It is expected that the new rules will come into force on 31 March 2017 with the cap to be set by the independent Financial Conduct Authority (FCA).