Pension Freedom Act
In 2015, the UK government introduced some of the biggest changes in pension history, commonly known as the "Pension Freedom Act", offering pension investors unprecedented flexibility and access to their pensions from the earlier age 55. A brief summary of the pensions freedom act:
Freedom to take your pension fund as and when you like:
From the age of 55 you have total freedom over what you do with your pension fund. You can choose to take your pension fund as one cash lump sum or a series of smaller cash lump sums. You will normally receive the first 25% of your fund tax-free, after which you will pay tax on withdrawals at your marginal rate of income tax.
Flexible access to your pension fund:
In addition to being able to take money out of your fund as one or more cas lump sums, you can also take as much pension income as you like under a drawdown pension, rather than being limited to the amount you can draw each year.
New annual allowance:
If you access your pension fund by using the new freedoms, you will only be able to contribute £10,000 a year to your pension, rather than the normal annual allowance of £40,000. This means you can carry on contributing after you start pension withdrawals, but you won’t be able to gain an unfair tax advantage.
Abolition of the 55% death tax:
The ‘55% death tax’ charge has been abolished. If you die before you are 75, your beneficiaries will normally be able to take a lump sum or income from the pension fund without paying tax. If you die after you are 75, your beneficiaries will have to pay 45% tax on a lump sum withdrawal, or their marginal rate of tax if they choose to take an income from the fund.