Understanding the New Pension Rules (UK)

New legislation is being introduced, in April 2015, that will apply to many people with UK pensions. These new pension rules will offer more versatility and choice, compared to what pensioners used to be offered. Increasing numbers of corporate pensions are being denied to new recruits, and others are being moved to defined contribution plans. The rules will impact lots of Americans and British expats, who have accumulated UK pension rights.

The main changes include the removal or reduction of the fifty-five percent ‘death tax’ laws, for defined contribution plans. Also, you will be permitted to withdraw all of the funds from your plan, once you retire. Transfers to these plans from defined unfunded benefit will be forbidden too.

In spite of the hullabaloo and media coverage that these new pension rules have attracted, the basic options for drawing an income have not altered significantly. You are still allowed to purchase an annuity (i.e. a stable income for life), or draw straight from your fund and keep your pension invested. Also, as a new option, you are allowed to withdraw a lump sum straight out of your pension. Remember that, when choosing an option, you don’t necessarily have to pick one over the other. You can just combine different options to suit your needs.

The new pension rules are excellent news, however more choices can sometimes result in more problems. Pensions are intended to offer an income to see you through retirement. If you withdraw a big lump sum straightaway, or your investment doesn’t perform as predicted and falls in value, you have a greater risk of running out of cash later on.

This might have a major effect on your lifestyle. You could be retired for several decades. Not many people want to be dependent on state handouts in their later years.

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