There is new flexibility for annuities should you require an ‘insured’ solution. Income will be able to go down as well as up if you choose an investment linked version, and guarantees won’t be limited to a maximum of 10 years.
A lot has been made of the new rules and how they relate to Final Salary pension schemes. These rules are complicated and a short summary would not do justice to the intricacies associated with such schemes. Should you be a member, current or deferred, of a Final Salary scheme, we recommend that you approach a specialist in this area.
For those with Defined Contribution (also known as money purchase) pension schemes, such as SIPPs or Personal Pensions, looking for greater flexibility, you now have five options:
1. Full flexi-access drawdown:
Take all tax-free cash and designate the remaining funds as a drawdown ‘income’ pot for flexible, unlimited access (albeit taxable).
2. Phased flexi-access drawdown:
Take some tax-free cash; designate the attaching ‘income’ pot for flexible unlimited access (taxable) and leave the remaining, untouched funds as a ‘savings’ pot.
3. Full withdrawal - no drawdown:
Withdraw the entire pot in one go as a capital lump sum – with 25% tax-free and the remainder subject to Income Tax at your marginal rate
4. Phased withdrawal - no drawdown:
Allows the pension provider to pay the policyholder a one-off lump sum without the need to officially convert to a drawdown plan – 25% of this payment will be tax free and the balance taxed at the marginal rate. This is called uncrystallised funds pension lump sum or UFPLS for short!
5. You can still use your pension pot to buy a traditional annuity that gives you a guaranteed income for the rest of your life. You can take 25% of your pot as tax-free cash and buy an annuity with the other 75%. You will have to pay tax on your annuity income.
It is important to note that those in a Capped Drawdown arrangement prior to 6 April 2015 will still be reviewed every three years if you're under age 75 and yearly after this and income limits based on Government Actuary Department (GAD) rates, unless they opt to use one of the new methods of taking pension benefits.