If you are a retirement saver confused about the recent pension changes and how they affect you and your money, you are not alone.
The government realises millions of retirement savers and pensioners need to know more about pension reform.
To help, the Treasury has produced a fact sheet detailing the eight main points everyone needs to know about pension reform:
You can spend your pension cash as you like – within certain rules
From April 2015, retirement savers can take as much money as they like from their pension pots – but they will have to pay income tax at the normal rate they pay on their salary or other income.
The old 55% penalty rate goes.
The first 25% drawn from the pension is tax-free
You can take the lump sum as one payment or a number of payments over several months or years
Only defined contribution pensions are included in the reforms
A defined contribution or money purchase scheme is generally a personal or workplace pension where the income paid on retirement depends on how much you have paid in and the performance of investments in the underlying fund
What about defined benefit schemes?
A defined benefit pension offers a guaranteed income linked to final salary. Retirement savers with these schemes – typically public sector or civil service pensions – can switch their fund to a defined contribution scheme to benefit from the reforms
Free pension advice will be available
Independent and free pension guidance will be available online, telephone help lines and face-to-face appointments from advisors with no links to pension or annuity firms.
Pension providers must direct you to free guidance
Pension providers will be required to flag up the offer of free advice from the government
Who benefits from the changes?
If you are aged 55 or over in April 2015, you can access your pension money as you wish.
Younger retirement savers must wait until they are 55.
What do I have to do draw my pension money?
Nothing. Some interim measures are in place for small pension funds, which you can find out about from this factsheet.
From April 2015, you will be notified further by your pension provider
What about Qualifying Recognised Overseas Pension Schemes (QROPS) ?
The government is aware the reforms affect QROPS retirement savers and is looking at whether to extend the pension reforms to them and will make an announcement before April 2015.
