Access to your entire pension pot?

George Osborne’s 2014 Budget introduced new rules that radically effect how pensioners use their accumulated funds.

The follow-up consultation relates to how (and whether) the proposed changes will happen. The Government aims to confirm changes (that become effective from April 2015 onwards) by 22 July 2014.

The first of a series of reforms came into effect on 27 March 2014 and by April 2015 it is proposed that all restrictions on access to your pension pot will be removed - the intention being that it will be easier to use your entire fund as you wish. For example someone aged 60 with a £100,000 pension pot who was due to receive their State Pension at aged 66 could actually choose use their full £100,000 pot over the next 6 years to bridge the gap between age 60 and State Pension age. Clearly this makes pension arrangements much more flexible from March 2015 onwards.

In the meantime a number of measures are being implemented that increase the amount of retirement savings that can be readily accessed and affect anyone saving into a personal pension, or a workplace scheme where payouts are based on the performance of the underlying investment fund rather than final salary.

If you are about to reach pension age (at least 55, but your scheme may have different rules), the first set of changes may apply, where:

You have accumulated up to £30,000 in your pension

The amount you are able to withdraw from your pension as a lump sum has increased from £18,000 to £30,000.

Of this, 25% remains tax-free, the remainder attracting income tax at your highest personal rate. As the average pension pot amounts to around £30,000, many people are expected to take advantage of this.

Previously, these savers would have generally bought an annuity, the product bought at retirement that provides a lifetime income.

You have several small pension pots

You will be able to take up to three personal pensions worth £10,000 each as cash, rather than two worth £2,000 as previously. You can also cash in one workplace pension scheme worth £10,000 or less.

If you had three separate personal pension pots of say, £6,000, £7,000 and £8,000, you could take these as a lump sum of £21,000 with up to 25% tax-free and the remainder taxed at your personal rate.

You keep your pension money invested

Another of the changes relates to those choosing to go into income drawdown, leaving their pension fund invested and withdrawing an income from it.

You will be allowed to take a higher income, subject to your personal tax rate, with the Capped Drawdown limit being raised from 120% to 150% of the equivalent annual income you would have got had you bought an annuity.

From April 2015, the proposal is that you will be able to withdraw the whole amount, subject to your personal tax rate.

The rules around Flexible Drawdown have also changed. Previously, you could only use this method of drawing pension income if you had £20,000 of guaranteed pension income from other sources, but now you can use it if you have just £12,000 coming in from elsewhere.

What happens if you’ve already bought an annuity?

Once set up, annuities cannot usually be cancelled, but you usually have 30 days to change your mind (cancellation period). The start date will depend on the terms set out by your annuity provider, but some providers have extended this to allow more time to reflect.

Note – Some of these changes have yet to be confirmed, so please ensure that you seek professional advice before making a decision.

David Squire, Partner, Kendal

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter


Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575


Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Unless otherwise indicated, either expressly or by the context, we use the word “partner” to describe a member of Armstrong Watson LLP or an employee of Armstrong Watson LLP in their capacity as such.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales, number 8800970. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales, number 7208672. The registered office is 15 Victoria Place, Carlisle, CA1 1EW. Armstrong Watson Financial Planning & Wealth Management is a trading style of Armstrong Watson Financial Planning Limited.

Armstrong Watson Trustees Limited is a limited company registered in England and Wales, number 84495656. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.