But beware of pension fraudsters
The rules on how you can access your defined contributions pension savings from age 55 change from today. Changes to pension rules will give savers much more control over their money – but some industry experts fear that the changes will see a new wave of cold-calling, fraud and criminal activity.
The government is advising people not to take cold calls from fraudsters posing as pension professionals. Pensions minister Steve Webb – who himself was cold-called by fraudsters – acknowledges that there are risks involved with making pensions savings easier to access.
“A lot of people will have access to a lot of money come April, and there’s a bunch of crooks out there,” he said. “People should take professional advice. Pension Wise – our service – is the place to go. Not somebody who cold calls you.”
The GMB trade union is urging the Information Commissioners to crack down hard when dealing with cold callers threatening the pension pots of millions of UK savers.
GMB commented last week on the statement from the Information Commissioners Office (ICO) that they are investigating claims that details of the pension pots of millions of people are being sold and ending up in the hands of cold callers. See notes to editors for statement by ICO and reports on Press Association.
Phil McEvoy, GMB National Pensions Officer, said: “This is a worrying example of the activities that look certain to accompany the new freedoms on pensions.
“History does not look kindly on pension deregulation with the mis-selling scandals of 25 years ago showing that freedoms can simply induce a feeding frenzy amongst the scavengers seeking to deprive savers of their money.
“It looks like the vultures are coming home to roost again. It is imperative that the ICO as regulator throw the book at anyone threatening the future finances of UK’s pensioners.
“ICO should not hesitate to use its power to issue penalties of up to £500,000 where marketing calls or messages cause or have the potential to cause substantial damage or distress.”
Access your savings
From today (6 April), from age 55, you can access as much of your savings from your defined contributions pension scheme (also known as ‘money purchase schemes’) as you want under new ‘pensions flexibility’ rules.
Schemes don’t have to offer these options. Talk to your pension provider to see what options are available to you.
You can transfer your pension savings to a pension provider that offers the option that you want to use.
You can access your benefits in a number of different ways:
Lump sum payment
You can take money direct from your pension pot without having to buy an annuity or put the money into drawdown, and 25% of this sum will be tax free. This is called an ‘uncrystallised funds pension lump sum’ (UFPLS). You can take one or more UFPLS payments and these can be regular or irregular payments.
If you receive a UFPLS and this is the first time you have used the pension flexibility rules to access your pension savings, your scheme administrator will provide you with a flexible access statement.
Lifetime annuity
You can use some or all of your funds to buy an annuity that will be payable at least for the rest of your life.
You can take a tax free lump sum of up to 25% of your pension pot when you buy an annuity. This is called a pension commencement lump sum.
Flexi-access drawdown
You can put funds into drawdown. From 6 April 2015 there are no limits on how much or how little you can take from your drawdown fund each year. You can take a tax free pension commencement lump sum of up to 25% of your pension pot when you put funds into drawdown. Any drawdown payments are taxed as income.
If you receive a flexi-access drawdown payment and this is the first time you have used the pension flexibility rules to access your pension savings, your scheme administrator will provide you with a flexible access statement.
Capped Drawdown
You can continue in capped drawdown if you were in a scheme before the changes, but no new capped drawdown funds or flexible drawdown funds may be set up from 6 April 2015 onwards.
If you are in capped drawdown you may either convert your fund into a flexi-access drawdown fund or continue to take a capped drawdown pension from your arrangement. Speak to your pension scheme administrator if you want to convert to flexi-access drawdown.
You can add additional funds to your existing capped drawdown arrangements and your existing annual pension limits and review periods for capped drawdown will continue to apply. Capped drawdown payments are taxed as income.
Short term annuities
If you are in drawdown you can decide to receive benefits in drawdown by purchasing short term annuities. These are paid by insurance companies at least annually and for no more than 5 years.
Overseas pension schemes
Changes made to the legislation covering pensions savings in overseas schemes bring them in line with the 2015 changes made to the rules for UK registered pension schemes.
These changes affect:
- qualifying recognised overseas pension scheme (QROPS) – schemes that can receive transfers from registered pension schemes as authorised payments
- currently relieved non-UK pension schemes – where UK tax relief has been given on or after 6 April 2006 in respect of pension savings under the scheme
Collectively, these schemes will are known as ‘relevant non-UK schemes’ and will be subject to similar rules as UK registered pension schemes.
Tax on payments and contributions
All payments you receive from an annuity or drawdown are taxable as income. You also pay income tax on 75% of the amount of any UFPLS you receive. The amount of tax you pay will depend on the amount of payments that you receive in the tax year plus any other taxable income you have.
You’ll also pay tax on any contributions you make to your pension pot over your tax-free annual allowance.
You can find more information from GOV.UK guides on:
- tax when you get a pension
- tax on your private pension contributions
- Income Tax
- rates and personal allowances
- paying the right amount
Further Information
Pension Wise is a free and impartial government service that helps you understand your new pension options.
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