The 2014 Budget has brought about many changes, with arguably the most surprising being the financial freedom offered to those who retire.
From April 2015 people will be able to take their Pension any way they want. Gone is the need to buy an annuity (the perception that you needed to buy an annuity is wrong anyway – you never had to buy an annuity). You can take as much of your Pension as a taxable cash lump sum as you would like. That means you can take your total Pension savings as a taxable cash lump sum!
This has change has split opinion!
On the one side of the fence are people who believe that this financial freedom is irresponsible, that your pension should provide you with an income through retirement. They believe that taking it in one go and spending it could see you starved of an income in retirement and in the words of the Pensions Minister Steve Webb, people will now go out and spend their retirement savings on a Lamborghini!
But there are also those who think this is great news! The freedom to do what you want with your Pension savings has suddenly made saving for a Pension much more attractive, a very good thing as not enough people realise how important saving towards your retirement is.
It could also help people pay off their mortgages and any outstanding debt, allow people to go on that holiday they had always dreamed of, help put the Grandkids through school, buy a new car (though maybe not as lavish as a Lamborghini!) and many more great things.
The only downside is that those who want to retire have to wait a year for these rules to come into place!
However, there is one rule that could allow you to withdraw your total Pension as a cash lump sum BEFORE April 2015.
The Pension Triviality rules state that if your TOTAL Pension savings are less than £30,000 you can withdraw them as a taxable cash lump sum, with 25% of it tax free.
This means that if you had £20,000 in a Personal Pension and a workplace Pension worth £12,000 you would not qualify as your total Pension savings would equal £32,000.
Before the 2014 Budget the limit used to be £18,000 not £30,000, though this positive change came into place on the 27th March 2014 – so you can take advantage of it now!
What this means
These new rules are potentially very beneficial for those with smaller Pension pots. However, it is important to note that taking all of your Pension may not be best for you and your situation, this is why financial advice is so important. It can also get very complicated – getting it wrong could also bring heavy fines!
Please note that the Budget brought about changes to several other rules that could allow you to withdraw your Pension before April 2015.
This article was a contribution from Increase Your Pension. You can find many more educational articles, guides, infographics and videos on increaseyourpension.co.uk too.