1. The Pension Changes of 2015
Neil Gardner BA Hons,
MA, PGCE
09/04/2016 Neil Gardner BA Hons MA PGCE 1

2. Access to your savings
• From 6th April 2015, from age 55, you can
access as much of your savings from your
defined contributions pension scheme (more
commonly known as ‘money purchase
schemes’) as you want under new ‘pensions
flexibility’ rules.
• However, schemes don’t have to offer these
options.
09/04/2016 Neil Gardner BA Hons MA PGCE 2

3. Access to your savings
• You can transfer your pension savings to a pension
provider that offers the option that you want to use
from 6th April 2015, from age 55.
• You can access your benefits in a number of different
ways such as:
• Lump sum payment
• You can take money direct from your pension pot
without having to buy an annuity or put money into
drawdown, and 25% of this sum will be tax free.
09/04/2016 Neil Gardner BA Hons MA PGCE 3

4. Lump sum payment
• This is known as an uncrystallised funds
pension lump sum (UFPLS). You can take one or
more UFPLS payments and these can be regular
or irregular payments.
• If you receive a UFPLS and this is the first time
you have used the pension flexibility rules to
access your pension savings, your scheme
administrator will provide you with a flexible
access statement.
09/04/2016 Neil Gardner BA Hons MA PGCE 4

5. Lifetime annuity
• You can use some or all of your fund to buy an
annuity that will be payable at least for the rest of
your life.
• You can take a tax free lump sum of up to 25% of
your pension pot when you buy an annuity, called a
pension commencement lump sum.
09/04/2016 Neil Gardner BA Hons MA PGCE 5

6. Flexi-access drawdown
• You can put funds into drawdown. From 6th April
2015 there are no limits on how much or how little
you can take from your drawdown fund each year.
• You can take a tax free pension commencement
lump sum of up to 25% of your pension pot when
you put funds into drawdown. Any drawdown
payments are taxed as income.
09/04/2016 Neil Gardner BA Hons MA PGCE 6

7. Flexi-access drawdown
• If you receive a flexi-access drawdown
payment and this is the first time you
have used the pension flexibility rules to
access your pension savings, your
scheme administrator will provide you
with a flexible access statement.
09/04/2016 Neil Gardner BA Hons MA PGCE 7

8. Capped Drawdown
• You can continue in capped drawdown if you were in
a scheme before the changes, but no new capped
drawdown funds or flexible drawdown funds may be
set up from 6th April 2015 onwards.
• If you are in capped drawdown you may either
convert your fund into a flexi-access drawdown fund
or continue to take a capped drawdown pension
from your arrangement. Speak to your pension
scheme administrator if you want to convert to flexi-
access drawdown.
09/04/2016 Neil Gardner BA Hons MA PGCE 8

9. Capped drawdown
• You can add additional funds to your existing
capped drawdown arrangements and your
existing annual pension limits and review
periods for capped drawdown will continue to
apply.
• Capped drawdown payments are taxed as
income.
09/04/2016 Neil Gardner BA Hons MA PGCE 9

10. Short term annuities
• If you are in drawdown you can decide to
receive benefits in drawdown by purchasing
short term annuities.
• These are paid by insurance companies at
least annually and for no more than 5 years.
09/04/2016 Neil Gardner BA Hons MA PGCE 10

11. Tax on payments and contributions
• All payments you receive from an annuity or
drawdown are taxable as income.
• You also pay income tax on 75% of the amount of
any UFPLS you receive.
• The amount of tax you pay will depend on the
amount of payments that you receive in the tax year
plus any other taxable income you have.
09/04/2016 Neil Gardner BA Hons MA PGCE 11

12. Summary: options for using your pensions pot
• Following the changes introduced in April 2015
people now have more choice and flexibility than
ever before over how and when they can take
money from their pension pot.
• You must have reached normal minimum pension
age to access your pension pot, currently age 55 (or
earlier if you’re in ill health or if you have a protected
retirement age).
09/04/2016 Neil Gardner BA Hons MA PGCE 12

13. Summary: new pension freedoms
• Changes introduced from 6th April 2015 give you
freedom over how you can use your pension pot(s)
if you’re age 55 or over and have a pension based
on how much has been paid into your pot (a
defined contribution scheme).
• Whether you plan to retire fully, to cut back your
hours gradually or to carry on working longer, you
can now tailor when and how you use your pension
and when you stop saving into it, to fit with your
particular retirement plan.
09/04/2016 Neil Gardner BA Hons MA PGCE 13

14. Summary: what is a pension pot?
• ‘Pension pot’ refers to a type of pension you build
up with pension contributions you and/or your
employer make. You’ll have one if you have a
defined contribution pension which includes
workplace, personal and stakeholder pension
schemes.
• Under the new flexible rules you can mix and match
your options, using different parts of one pension
pot or using separate or combined pots.
09/04/2016 Neil Gardner BA Hons MA PGCE 14

15. Options: leave your pension pot untouched
• You may be able to delay taking your pension until a
later date. Your pot then continues to grow tax-free,
potentially providing more income once you access
it.
• Option: use your pot to buy a guaranteed income
for life – an annuity
• You can choose to take up to a quarter (25%) of your
pot as a one-off tax-free lump sum then convert the
rest into taxable income for life (an annuity).
09/04/2016 Neil Gardner BA Hons MA PGCE 15

16. Option: use your pot to provide a flexible
retirement income (flexi-access drawdown)
• With this option you can take up to 25% of your
pension pot or of the amount you allocate for
drawdown as a tax-free lump sum, then re-invest
the rest into funds designed to provide you with a
regular taxable income.
• You set the income you want, though this may be
adjusted periodically depending on the performance
of your investments. Unlike a lifetime annuity your
income isn’t guaranteed for life, so you need to
manage your investments carefully.
09/04/2016 Neil Gardner BA Hons MA PGCE 16

17. Options: take small cash sums from your
pot
• You can use your existing pension pot to take cash
as and when you need it and leave the rest
untouched where it can continue to grow tax-free.
• For each cash withdrawal the first 25% is tax-free and
the rest counts as taxable income.
• There may be charges each time you make a cash
withdrawal and/or limits on how many withdrawals
you can make each year.
09/04/2016 Neil Gardner BA Hons MA PGCE 17

18. Option: take small cash sums from your pot
• With this option your pension pot isn’t re-invested
into new funds specifically chosen to pay you a
regular income and it won’t provide for a dependent
after you die. There are also tax implications to
consider.
09/04/2016 Neil Gardner BA Hons MA PGCE 18

19. Option: take your whole pot as cash
• You could close your pension pot and take the whole
amount as cash in one go if you wish. The first 25% will
be tax-free and the rest will be taxed at your highest tax
rate, by adding it to the rest of your income.
• There are many risks associated with cashing in your
whole pot. For example, it’s highly likely that you’ll be
landed with a large tax bill, it won’t pay you or any
dependent a regular income and, without careful
planning, you could run out of money and have nothing
to live on in retirement. Be sure to get financial advice
before cashing in your whole pot.
09/04/2016 Neil Gardner BA Hons MA PGCE 19

20. Mixing your options
• You don’t have to choose one option when deciding
how to access your pension, you can mix and match
as you like, and take cash and income at different
times to suit your needs. You can also keep saving
into a pension if you wish, and get tax relief up to age
75.
• Which option or combination is right for you will
depend on:
• When you stop or reduce your work
09/04/2016 Neil Gardner BA Hons MA PGCE 20

21. Mixing your options
• Which option or combination is right for you will depend on:
•
• Your income objectives and attitude to risk
• Your age and health
• The size of your pension pot and other savings
• Any pension or other savings your spouse or partner has, if
relevant
09/04/2016 Neil Gardner BA Hons MA PGCE 21

22. Mixing your options
• Which option or combination is right for you
will depend on:
•
• Whether you have financial dependants
• Whether your circumstances are likely to
change in the future
09/04/2016 Neil Gardner BA Hons MA PGCE 22

23. Conclusion: what is the main change of the
new pension changes of April 2015?
• Savers have always had the freedom to take 25% of
their pension in a tax-free lump sum, but have then
been herded into buying an annuity with all of the
rest of the money.
• But from 6th April 2015, savers over the age of 55
have been given the option of taking a number of
smaller lump sums, instead of one single big lump
sum, and in each case, 25% of the sum will be tax-
free.
09/04/2016 Neil Gardner BA Hons MA PGCE 23

24. Conclusion: what is the main change of the
new pension changes of April 2015?
• The main beneficiaries of the new pension freedoms are
those who have built up relatively large pension pots,
who will be using the new freedoms to avoid paying 40%
tax when they draw it down under the new freedoms.
• For example, if you have a £200,000 pot, you could cash
it in from April 2015 and have £50,000 tax-free, but the
remaining £150,000 would be liable for tax. This means
that, depending on the individual’s personal allowance
and other earnings, a lot of it will be swallowed up by
40% tax, as much as £53,600.
09/04/2016 Neil Gardner BA Hons MA PGCE 24

25. Conclusion: what is the main change of the
new pension changes of April 2015?
• But if the person decides to take the pension
instead as £50,000 each year for four years,
then each year he/she will receive £12,500
tax-free and be liable for income tax only on
the remaining £37,500, which could be as low
as £5,500. So instead of paying more than
£50,000 in tax, the person pays around
£22,000.
09/04/2016 Neil Gardner BA Hons MA PGCE 25