Pension Regulations

Your retirement options are changing

Retirement rules changed in April 2016. Now you have more flexibility and choice in how you take your pension. 

Pension Freedom

The new rules, called ‘Pension Freedom', provide more flexibility and choice in how you take your pension. Read below to understand the changes and help you to decide what to do next.

Remember, pension savings are designed to provide income for the rest of your life. If you decide to take advantage of the new flexibility and withdraw savings from your pension, you need to know how you will finance your retirement.

What changed and when?

Under the old rules, choices were very limited at retirement and most people simply bought an annuity1, which provided a guaranteed income for the rest of their life.

The new rules mean that you now have full flexibility to take out as much of your pension as you like, at any time, from age 55.

Providing you are within the lifetime allowance2 that now applies to pensions, you can take 25% of your pension tax-free as a lump sum. Thereafter, if you take out more as a lump sum or income, you have to pay income tax on this amount, which could result in a hefty tax bill.

While you no longer have to buy an annuity or set up income drawdown with anything you leave in your pension, the reality is that most people will need a secure income in retirement that they can rely upon to top up their state pension. The range of options now available is vast and selecting what is appropriate will depend entirely on your individual circumstances. Most people will use one or a combinations of the following options:

  • Take it all in one go – this could involve a substantial tax bill, with all the taxable income being taken in one year
  • Withdraw it gradually – you choose the period over which to draw your pension, paying the relevant tax due in each year
  • Withdraw up to 25% tax-free and leave the rest invested – this allows you to take a lump sum and have an income at a later date
  • Buy an annuity – the rules are being relaxed so that annuities are now optional. It’s expected that new products will become available

Our retirement income calculator can give you a better idea of how much you could be paid from your pension savings. Try it out to see what your retirement income could be using different options.

While these are the main changes to how income can be provided in retirement, there are other important changes that came into effect as part of the new rules.

It’s important that before you decide to use these new ways of drawing money out of a pension, you should either seek more detailed information or get independent financial advice about what is the right thing for you. We’ve included some links below that may help you do this.

It’s important to bear in mind that just as these rules are changing, like all tax rules, they can change again in the future. The value of favourable tax treatments to you will depend on your individual circumstances which can also change. We don’t offer tax advice so if you’re unsure, please seek it independently.

More information and next steps

To help you gain the right insight and guidance to assist you in making appropriate decisions, here are some sources of information you may like to consider.

Don’t forget, you can also use our retirement income calculator too. 

Organisation

Contact details

What it provides

The Money Advice Service

  • Free and impartial money advice set up by the government
  • Advice and guides to help improve your finances
  • Tools and calculators to help you keep track and plan ahead
  • Support in person, over the phone and online

Pension Wise

www.pensionwise.gov.uk

 

0800 138 3944

  • A free and impartial government service that helps you understand your new pension options
  • ‘At retirement’ supplied in conjunction with the Pensions Advisory Service & Citizens Advice Bureau

The Pensions Advisory Service

  • Free and impartial guidance to people in workplace savings plans (auto enrolment) and personal pensions
  • ‘At retirement’ telephone consultations as part of Pension Wise

Citizens Advice Bureau

www.citizensadvice.org.uk/

03444 111 444 (England)
03444 77 20 20 (Wales)

  • Free, confidential and impartial advice on financial matters
  • ‘At retirement’ face to face meeting as part of Pension Wise

Unbiased.co.uk

  • One-stop source for experienced, regulated financial advisers, covering pensions and retirement advice, auto enrolment and tax planning
  • Free pensions health check
  • Discounted advice 

Which?

  • Which? have produced a free guide explaining the questions you need to ask and what to make of the answers