THE MOST RADICAL CHANGES

TO PENSIONS IN ALMOST A CENTURY

The government is introducing the most radical changes to pensions in almost a century from April 2015.
They were initially proposed by the Chancellor in his March Budget and confirmed in the Taxation of Pensions
Act 2014. Further changes were also announced in the Autumn Statement on 3 December.
Here we give the basic facts and explain how they might affect you.
CHANGE 1: Flexible access to pensions from age 55
What is changing: From April 2015 most pension investors aged at least 55
will have total freedom over how they take an income or a lump sum from their
pension. They can choose to:
a. Take the whole fund as cash in one go 25% tax free and the rest taxed as
income;
b. Take smaller lump sums, as and when they like with 25% of each withdrawal
tax free and the rest taxed as income;
c. Take up to 25% tax free and a regular taxable income from the rest (via income
drawdown where they draw directly from the pension fund, which remains
invested or via an annuity where they receive a secure income for life).
Any withdrawals in excess of the tax-free amount will be taxed as income at
your marginal rate. So, if you are a basic-rate (20%) taxpayer, any income you
draw from your pension will be added to any other income you receive (e.g.
your salary) and this could push you into the higher (40%) or even top-rate
(45%) income tax bracket.
It should also be possible to take the tax-free cash straightaway and the taxable
income via income drawdown at a later date.
Who will be affected: Anybody with a defined contribution pension e.g.
individual or group personal or stakeholder pensions, Self Invested Personal
Pensions (SIPPs), some Additional Voluntary Contribution (AVC) schemes, etc.
could benefit. Investors aged 55 or over in April 2015 should be able to take
advantage of the increased flexibility straightaway.

CHANGE 2: New restrictions on how much you can

contribute to private pensions
What is changing: Pension contributions are (and will still be after April 2015)
subject to a 40,000 annual allowance and specific contribution rules. However,
if after April 2015 you make withdrawals from a defined contribution pension in
addition to tax-free cash, contributions to defined contribution plans could also
be restricted to 10,000.
When you flexibly access benefits you must, within 91 days, inform any of your
pension providers to which contributions are subsequently paid, or face a 300
fine.
Who will be affected: Anybody who has a defined contribution pension and
takes income from it after April 2015 could be affected. There are exceptions:
1. Your pension is worth 10,000 or less and you take it as a small pot. You
can do this up to three times from a personal pension and unlimited times
from occupational ones. Other conditions apply; or
2. You go into capped drawdown before April 2015 and your withdrawals after
that remain within the current drawdown limit; or
3. You take your pension as a lifetime annuity (other than a flexible annuity)
or scheme pension (except when fewer than 12 people are entitled to one
under that scheme).
This 10,000 limit does not apply to any benefits you are building up in a final
salary pension. Investors already in flexible drawdown before April 2015 will
be able to make contributions of up to 10,000 a year (they are not currently
allowed to make any contributions).

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CHANGE 3: 55% pension death tax to be abolished

CHANGE 5: Access to impartial guidance

What is changing: Currently, it is normally only possible to pass a pension on

as a tax-free lump sum if you die before age 75 and you have not taken any
tax-free cash or income. Otherwise, any lump sum paid from the fund is subject
to a 55% tax charge.

What is changing: In his Budget speech, George Osborne announced that

everyone should have free guidance to help them make sense of their options
at retirement. This service will be provided by Citizens Advice Bureau and the
Pensions Advisory Service. There will be no charge and your pension provider
will be required to tell you about the impartial guidance.

From April 2015 this tax charge will be abolished. The tax treatment of any
pension you pass on, which you do not use to purchase an annuity, will depend
on your age when you die.
If you die before age 75, your beneficiaries can take the whole pension fund as
a tax-free lump sum or draw an income from it, also tax free, either by choosing
to buy an annuity (if you died on or after 3 December 2014) or by using income
drawdown. This does not apply if the first payment to your beneficiary is paid
before 6 April 2015.
If you die after age 75, your beneficiaries have three options:
a. Take the whole fund as cash in one go: the pension fund will be subject
to 45% tax. However, it has been proposed this should be changed to the
beneficiarys or beneficiaries marginal rate of income tax from 2016/17.
b. Take a regular income through an annuity or income drawdown: the income
will be subject to income tax at your beneficiarys or beneficiaries marginal
rate.
c. Take periodical lump sums through income drawdown: the lump-sum
payments will be treated as income, so subject to income tax at your
beneficiarys or beneficiaries marginal rate.
Who will be affected: Anybody who has a defined contribution pension
e.g. individual or group personal or stakeholder pension, Self Invested Personal
Pensions, Additional Voluntary Contribution schemes, etc. will be affected.
Those who have an annuity will only be affected if they have chosen the option
called value protection (see change 4 for details of how the tax cut works for
annuities).

CHANGE 4: Death after buying an annuity tax cut

What is changing: When you buy an annuity, you can choose for the income to
be paid to your spouse or partner after you die (a joint life annuity). You can also
choose a guarantee period or value protection for example, if you buy a 10
year guarantee and die after 2 years, the annuity will be paid for another 8 years
to your spouse, partner or beneficiaries.
Currently, your spouse, partner or beneficiaries pay income tax at their marginal
rate. In the Autumn Statement the Chancellor announced it will be tax free if you
die before age 75.

Who will be affected: Anybody taking retirement benefits after April 2015.

CHANGE 6: Transferring a defined benefit pension

(e.g. final salary)
What is changing: Most people with a defined benefit (e.g. final salary)
pension will be able to take advantage of the new rules and make unlimited
withdrawals. To do so, they will have to transfer to a defined contribution
pension (e.g. a SIPP). But as you could lose very valuable benefits, you will have
to receive appropriate independent advice first.
Who will be affected: Anybody with a defined benefit pension, wishing to
take advantage of the increased flexibility after April 2015. It will no longer be
possible to transfer from most public sector pension schemes.

CHANGE 7: Retirement ages to increase

What is changing: The age at which you can draw your pension, currently 55,
is set to increase. It will be 57 from 2028 and from then increase in line with the
rise in the State Pension age. It will remain 10 years below the State Pension
age. This will not apply to Public Sector Pension Schemes for Firefighters, Police
and Armed Forces.

What happens if you have retired already?

If you are receiving an annuity income from all your pensions, you could
only be affected if you have a joint life annuity or an annuity with a
guarantee period or value protection (see change 4).
If you are in income drawdown (capped or flexible) you should be
able to benefit from the new rules. Hargreaves Lansdowns income
drawdown clients will be able to do so from 6 April 2015. It is yet
unclear when and whether other pension and drawdown providers will
allow their clients to benefit from the new freedoms.

A joint life or dependants annuity will be able to be paid to anyone after you die,
subject to any restrictions of your annuity provider. On their subsequent death
any value protection or remaining guarantee period can be paid to anyone.
Who will be affected: Anybody with a joint life, value protected or guaranteed
annuity who died on or after 3 December 2014 before turning 75. The first income
payment to your partner, spouse or beneficiaries must be made after 5 April
2015, otherwise it will be taxable.

Any questions?
Our Pensions Helpdesk will be happy to help:
Call 0117 980 9926
(Mon-Thurs 8am-7pm, Fri 8am-6pm, Sat 9:30am-12:30pm)
Email pensions@hl.co.uk
Write to Hargreaves Lansdown, One College Square South,
Anchor Road, Bristol, BS1 5HL

IMPORTANT NOTE This factsheet is based on our current understanding of the Taxation of Pensions Act, the Pension Schemes Bill, the Autumn Statement and subsequent
treasury announcements as at 5 January 2015. It is a broad summary and cannot cover every nuance. You should not take, or refrain from taking, any action based on this
information. Tax treatment can change and depends on your circumstances. Unless stated otherwise, all figures apply to the 2014/15 tax year. Please remember, taking money
out of a pension will impact standards of living in retirement. This information, like our service is not personal advice. If you are unsure an investment is right for you, contact
us and we can put you in touch with an adviser. The value of investments can fall as well as rise so you may get back less than you invest.
05.01.2015