From next April, savers will be able to access their pension without limits or penalty taxes in three ways, including an option that would leave a pot uncrystallised without entering drawdown or buying an annuity.
HM Revenue and Customs’ today (6 August) published draft guidance on clauses for the Taxation of Pensions Bill, which will bring into law the changes confirmed by the government last month that will liberate savers’ access to savings.
Options include placing a fund into drawdown under a new type of fund known as ‘flexi-access drawdown’, from which consumers can withdraw any amount over whatever period they choose. Alteratively savers could provide an income by using their pot, or a portion of it, to purchase a lifetime annuity.
Alongside these familiar options, HMRC unveiled a third option that will allow savers to take lump sums from their pension after the age of 55, without crystallising the pot.
Under this option the saver would not need to make an immediate decision on their 25 per cent tax-free lump sum, or allocate the remainder to a drawdown vehicle at the same time or to an annuity within six months.
According to consultancy Towers Watson, this could open up planning options for savers for whom deferring the tax-free amount may be beneficial.
Dave Roberts, a consultant at the firm, said: “How it makes sense to take money out of a pension can depend on the individual’s circumstances. If they are still working and don’t expect their future retirement income from other sources to use up their full tax allowance, they might prefer tax-free withdrawals now and taxable withdrawals later.”
Mr Roberts also said the entitlement for members to transfer their pension from a legacy scheme not offering the new drawdown option to one that facilitates the new ‘Fad’ are likely to be “strengthened through the Pension Schemes Bill... going through parliament this year”.