Nonna e nipote

From April 2015, no matter how much you decide to take out from a defined contribution pension after retirement, withdrawals from your pension will be treated as income. The amount of tax you will pay on what you withdraw will depend on the amount of other income you have in that year, as long as you are 55 or over. This is instead of being taxed 55% for full withdrawal, as it has been previously.

Subject to your pension scheme rules, up to 25% of your pension pot will remain completely tax-free, as it was before. Most people will still be able to access 25% of their pot in one go without paying any tax.

It was previously announced that this would apply just to people with ‘defined contribution’ pensions. This is a type of pension also known as a ‘money purchase’ scheme.

It was previously announced that this would apply just to people with ‘defined contribution’ pensions. This is a type of pension also known as a ‘money purchase’ scheme.

This is when a pension provider invests the money you and your employer pay into your pension scheme. The amount you get when you retire usually depends on how much has been paid in and how well the investment has done.

A ‘defined benefit’ pension is typically a promise of a certain level of pension in retirement, which is linked to your salary.

People in the private sector or in a funded public sector scheme will still be able to transfer from a defined benefit pension scheme to a defined contribution one if they want to, meaning they can benefit from the changes. Those in unfunded public sector schemes will not be able to transfer.

Changes with teacher pensions

Most importantly for our readers who have worked and resided in the UK, these new changes will now mean that ‘teacher’s pensions’, which form part of the Public Sector Schemes, will no longer have the option to transfer their pensions offshore. This means that whether you decide to retire in the UK or not, you will still have to pay UK taxation on your pension income. With the right action taken this can certainly be minimised.

How have the death benefits changed?

Instead of paying the 55% rate of tax when passing on their pension, people who die under 75 with defined contribution pensions can from April 2015 pass on their unused pension as a lump sum to a person of their choice tax-free.

At the Autumn Statement 2014, the Chancellor George Osbourne, also announced that from April 2015 payments from certain kinds of annuities that pay out income after you die (joint life and guaranteed annuities) will be tax-free when paid to a beneficiary, if the original policyholder dies below age 75.

People who die over the age of 75 with unspent defined contribution pensions can pass this on to a person of their choice who will be able to take it as a lump sum taxed at 45% or as income and pay their normal rate of income tax.

This will help people make confident and informed choices on how they put their pension savings to best use.

By law every pension provider has to disclose all the terms of an individual’s pension scheme upon request.

With these changes coming into effect very shortly, I really do urge you take a free consultation to ensure that any changes made do not impact the future of not only your retirement, but also your family’s future.

By Aaron Crotty
For financial advice, contact Aaron at aaron.crotty@arloassociates.com
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