In 2015, the retirement rules were rewritten. The rules, which came into effect from 6 April 2015, have changed the way people take money out of their pensions, with new freedoms and options available to anyone over the age of 55.
Pension freedom tax rules allow members of defined contribution pension schemes to access their pension savings early, provided they have reached the required minimum pension age (currently 55).
Scheme members can now take their pension benefits in a number of ways. This could be as one or more payments a year for a number of years, several payments a year over a shorter time frame, or the full value of the fund could be taken in one payment subject to Income Tax. Through the second quarter of 2020 (between April and June), £2.3 billion was withdrawn from pensions flexibly – a 17% decrease year-on-year from £2.8 billion (second quarter 2019). However, the total value of flexible withdrawals from pensions since flexibility changes in 2015 has exceeded £37 billion.
The second quarter of 2020 saw 340,000 individuals withdraw from pensions – a 1% increase from 336,000 in the same quarter of the previous year. However, there has been a decrease in the number of individuals withdrawing compared to the first quarter of 2020 (348,000), which is contrary to normal seasonal patterns.
The average amount withdrawn per individual in the second quarter of this year was £6,700, falling by 18% from £8,200 in the same quarter last year. If you’re 55 or over and have a defined contribution (money purchase) pension plan, you can:
- Leave your pension pot invested
- Buy a guaranteed income for life (a lifetime annuity)
- Take a flexible income from your pension pot (typically known as ‘flexi-access drawdown’)
- Take a cash lump sum from your pension pot (up to 25% tax-free)
- Combine one or more of the options above. You can take cash and/or income at different times to suit your needs
For more information on your pension, our Snapshot Pensions service will provide you with a free report explaining many aspects of your pension. Visit the new request page to apply for your free of charge report. Alternatively, for questions on this article or any aspect of retirement planning please do not hesitate to contact Cornerstone Partner and Chartered Financial Planner, Scott Snedden.