A highlight of yesterday's Queen's Speech, as she opened Parliament and outlined the Government focus for the next year, was the confirmation that legislation would be put in place to change the way people can use their pension pots. But what does it mean for you?
Let's start by looking at the speech itself. "Legislation will be brought forward to give those who have saved discretion over the use of their retirement funds. My government's pension reforms will also allow for innovation in the private pensions market to give greater control to employees," said the Queen, and in this case it's the first sentence that's key.
Coming under the Pension Tax Bill, it means savers will be able to utilise discretion over how they use their retirement funds – essentially, this means you can choose what you want to do with your pot, taking it all out in one go should you wish, with there being no requirement to buy an annuity.
From April 2015, when the reforms are expected to come into full effect, you'll be able to withdraw your savings as you wish. The first 25% will still be tax-free, and although you'll need to pay tax on the remainder it'll simply be your marginal rate of income tax – in other words, what you'd usually pay to the taxman based on your income. Existing restrictions on access will be lifted, putting you in complete control.
You'll be able to take out the full amount in one go should you wish, or you might like to opt for income drawdown, where you can draw an income from your pot with the remainder staying invested. You could still opt for an annuity if you'd prefer to have a guaranteed income, or you can opt for a combination of the above – it's entirely down to you.
Of course, it's a big decision to make and there are a lot of aspects to consider, which is why getting advice is absolutely essential. Incidentally, the Government's promise of a guidance guarantee will also be implemented from next year, giving everyone the chance to get free, impartial guidance on the best course of action.
In the meantime you still want to make sure you've got all the facts, so start by boosting your knowledge by taking a look at our handy guide,Making Sense of the Budget 2014 Announcements, and if you're after more help then consult our online annuity planner to compare the options.
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