From 6 April 2015 People with defined contribution schemes who are at least 55 years old can make withdrawals up to the value of the funds invested in the scheme. The first 25% will be tax free and the person can choose whether to have the 25% tax free element applied to each withdrawal or to allocate it to one withdrawal.
If withdrawals are made from a pension scheme after 6 April 2015 then that individual will be restricted to making future pension contributions of no more than £10,000.
Funds left in a defined contribution pension scheme when the individual dies would, from 6 April 2015, usually pass to the heirs’ tax free. If death occurs before age 75, in most cases the heirs can make withdrawals as and when they choose free of tax. If death occurs after age 75, withdrawals will be treated as taxable income of the heirs and will be taxed at their marginal rates or if all the funds are withdrawn as a single lump sum this would be taxed at 45%.
From 6 April 2015, beneficiaries of individuals who die under the age of 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free where no payments have been made to the beneficiary before 6 April 2015. The tax rules will also be changed to allow joint life annuities to be paid to any beneficiary. Where the individual was over 75, the beneficiary will pay the marginal rate of Income Tax. (Finance Bill 2015)
Additional funding of £19.5m in 2015-16 will be provided to support the new pension freedoms and the new pensions guidance service, Pension Wise. This funding will extend the availability of state pension statement and pension tracing services. It will also provide for extra delivery capacity for Pension Wise: the government has put plans in place in case there is a need to draw on Department for Work and Pensions resources to help manage any initial spike in demand for the service.
From 6 April 2016 Pensioners who have previously purchased an annuity using their pension funds will be able to sell that annuity and receive the cash. This will then be taxed at the individuals’ marginal rate.
The government will legislate from April 2016 to allow people who are already receiving income from an annuity to agree with their annuity provider to assign their annuity income to a third party in exchange for a lump sum or an alternative retirement product.
The government will reduce the lifetime allowance for pension contributions from £1.25m to £1m from 6 April 2016. Transitional protection for pension rights already over £1m will be introduced alongside this reduction to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with CPI from 6 April 2018.