The pension freedom rules did change the pensions landscape in the UK and as mentioned, the pension freedom rules were quite revolutionary. The pension freedom rules allow those in a non-final salary scheme to take their pension at any time after age 55 and any amount they want. This does suit many people in retirement as income needs in retirement are rarely linear (same amount every year). The pension freedom rules allow you to take a higher pension when you first retire and are fit and active, pension freedom rules then also allow you to reduce your income in middle to late retirement when you start to slow down. The pension freedom rules then allow you to use any funds you may have left to fund your care in late retirement. So, the pension freedom rules are extremely good for many, but you can only take advantage of the pension freedom rules if you transfer out of your final salary or DB scheme.
It is certainly true that pension freedoms have given many people ‘freedom and choice’ in pensions like we have never had before. It was a very bold move by George Osborne to give individuals freedom and choice in pensions. But freedom and choice in pensions comes at a cost and that cost may, for some people, be too much.
So, what were the pension freedom changes? The main change was that individuals (excluding final salary or DB pension schemes) can take as much pension as they want whenever they want from age 55 (subject to tax). This is now often referred to as ‘Flexi-Access drawdown’ or FAD these pension freedom changes were revolutionary and very unexpected.
A final pension scheme is the same as a final salary pension scheme and some people may get confused over the term ‘final pension scheme’.
The main pension freedoms were in 2015 which are sometimes confused as pension freedoms 2018. Pension freedoms 2018 are the same as the 2015 freedoms.
As mentioned above the 2015 pension freedoms were revolutionary. Enabling individuals to be able to take what they want, when they want (from a minimum pension age), from their pensions has never happened before in UK pension history so the 2015 pension freedoms are very much a big deal but, to make the most of the 2015 pension freedoms you really should seek expert professional help and we can help you find this. The 2015 pension freedoms are fraught with danger, and you could end up both frittering away your life savings and lining the pockets of the treasury at the same time by paying huge amounts of tax. The 2015 pension freedoms used well and smartly can and should do the opposite.
So, what are the pension freedom options? Well, bizarrely, for some people it removed some freedoms. For some individuals who were employed by the government (Police, Fire, NHS, Teachers etc) they lost freedoms as they were no longer able to transfer out of their defined benefit pension, unless it was to another final salary / defined benefit scheme. So, what are the pension freedom options?
- Other than those people in most government schemes, provided you are not within 12 months of your scheme’s normal retirement date you have a legal right to transfer into a personal pension or SIPP or SSAS.
- The age you can take your pension is currently 55 unless you are either in a ‘special’ occupation (footballer, deep sea diver etc who can’t work to age 55*) or on 5 April 2006 your scheme offered a lower minimum pension age.
- You can take as much pension as you want after age 55 and whenever you want
- If you die before age 75 you can leave what’s left of your pension (not final salary) to whoever you want, and they can access the funds tax free.
- If you die after age 75 you can still leave what’s left of your fund to whoever you want but any funds that are withdrawn by your beneficiaries are taxed on them (as salary or pension income would be).
- Freedom over pension investments (within pension rules). The pension freedoms also gave, to a large degree, although not total freedom over pension investments. To make the most of this however you would need to transfer into a SIPP or SSAS. But this is mainly for a sophisticated or expert investor.
These are just the highlights. There is of course much more, so if you want help on pension freedom options you should contact an expert and here, we can help.
Some members of retirement annuity contracts or personal pension schemes can protect their right to take pension and lump sum benefits at their request before the normal minimum pension age. These are members who before 6 April 2006 were among those professional people, mainly sports persons and individuals in hazardous occupations, who had a normal retirement age below 50 approved by HMRC. For these rights to be protected from unauthorised payment tax charges, allowing the individual to continue to take a pension and/or lump sum from an age less than 55, the individual must on 5 April 2006:
- be or have been in a prescribed occupation (one prescribed by Regulation 3 of The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 – SI 2005/3451 – see heading below for more information),
- the member must have had the right on 5 April 2006 to take a pension and/or lump sum before the age of 50, and
- the right must be unqualified in that no other party need consent to the individual’s request before it becomes binding upon the scheme or contract holder (see PTM062210).
Where these conditions are met, the age at which the member has the right to take a pension on 5 April 2006 will become their protected pension age.
Pension Freedoms 2015
As mentioned above, the pension freedoms 2015 were revolutionary and have made a big impact on thousands of people. The pension freedoms 2015 were one of the biggest ever changes to pensions in the last few decades. But they can be dangerous if you do not take care and seek professional advice.
If you are looking at cashing in a final salary pension or know someone who is looking at cashing in a final salary pension, then you should seek professional expert and accredited (and preferably Pension Transfer Gold Standard) advice. If you would like to know more, please complete the enquiry form above for further information on cashing in a final salary pension.
So, under the 2015 pension freedoms you can usually take a final salary pension from age 55 (possibly subject to early retirement penalties if before the scheme normal retirement date). But you may wish to transfer and take your pension in a more flexible way. It is a big decision to take a final salary pension at 55 and you need to seek expert financial specialist help and we can help find the right expert for you.