UNLIMITED ACCESS TO YOUR PENSION FUND

Assuming the rules receive final approval, from the 6th of April 2015 those aged 55+ will be able to take unlimited amounts of cash from their pension. The first 25% will usually be tax-free and the rest will be taxed as income. It will be added to any other taxable income received during the tax year (e.g. your salary) and subject to tax at your highest rate. This new pension option is being call a “flexi-access drawdown”.

Note: Those with Final Salary Pensions (i.e. those based on the number of years you have worked and your salary when you retire) will not have the same unlimited access based on the proposed rules – unless they transfer their pension to a Money Purchase Scheme, i.e. one with a cash value.

Pitfalls to avoid:

1. Taking out too much, too quickly.

If you take it all out, you will have nothing to fall back on and you could pay high levels of tax. You can keep the tax low by taking amounts out annually at a level which keeps you from paying a higher rate of tax.

2. Once you start taking it out, you will severely limit how much you can then put into an existing or future pension.

Instead of  being able to contribute up to £40,000 a year into a pension, you will be limited to only

£10,000 a year. However, careful handling can enable you to gain some access to your pension fund while also being able to contribute up to the maximum of £40,000.