2015 – Pensions Freedom


During the Budget March 2014, George Osborne declared that ‘no one will have to buy an annuity’. These proposals which will took effect from April 2015 and are also known as Pensions Freedom, mainly because of the new flexibility and choice.

  • At retirement those in defined contribution type pensions (ie Personal Pensions) do not have to buy an annuity.
  • From your pension pot you will be able to take 25% of the value as a Tax Free Lump Sum.
  • The remaining 75% can also be taken as a lump sum, however this will be taxed as the top slice of your income in the year it is taken. In other words this 75% lump sum would be added on to your income as if you earned it during that tax year.
    • This most likely will incur 20% tax and could lead you into 40% or 45% tax.
    • Note: You do not have to take the other 75%, it can remain invested.  See Income Drawdown

Under the previous rules, the 75% had to be used to purchase an annuity (see Annuities) or similar product to provide you with an income. Once an annuity is taken it will provide you with an income for life but you will never have access to the lump fund again. The new rules now provide much greater choice and opportunity for individuals. But with more choice comes more difficult decisions.

If a flexible income or drawing a large amount from a pension is something that appeals to you it’s vital you take professional advice so you are aware of all the options and aware of how you could stagger payments to avoid the higher tax.

Please feel free to call us for a free initial consultation or submit your details for us to contact you.