2014 pension and Isa changes: your questions answered


Q: Who do the changes apply to?

A: Anyone with a personal or workplace defined contribution pension.

Q: Yes, that's me. But how will they affect me?

A: Most significantly, from April 2015 you will no longer have to buy an annuity when you cash in your pension pot and you will have total freedom over how you withdraw your money.

Q: What kind of freedom?

A: All restrictions on your pension pot will be removed. You will be able to access the entirety of your pension after the age of 55, subject to income tax at your highest marginal rate on three-quarters of the money. The other quarter can still be withdrawn free of income tax. You can spend or invest it in any way you see fit.

Q: But I'm due to retire in three months' time. Will I miss out?

A: It might be a good idea to wait until April 2015 so you can benefit from the reforms. However, if you want to cash in your pension pot before then you could take advantage of the new temporary measures.

Q: What temporary measures?

A: From 27 March, if your total pensions savings amount to £30,000 - rather than £18,000 previously - you will be able to take the whole lot in cash. This is known as 'trivial commutation' and will be taxed at your highest marginal rate.

If you have larger amounts in pensions savings, you can take up to three pensions worth up to £10,000 each as cash, rather than two £2,000 pensions as before.

If you use 'income drawdown' in your pension, you can take out larger sums as income - 150% of the equivalent annuity, rather than 120% previously. However this only applies on the drawdown anniversary date. To qualify for the more 'flexible drawdown', you will need just £12,000 of secured pension income from other sources to make unlimited withdrawals. This was previously set at £20,000.

Q: Can I withdraw my money more slowly to limit tax?

A: Yes. You could take the money out in annual lump sums (you may choose income drawdown for this option). As mentioned earlier, from April 2015 savers can withdraw as much as they want, so income can be varied to stay within the basic tax rate or nil-rate threshold.

Q: But what if I want an annuity? Can I still buy one?

A: Yes, if you want a guaranteed income for life. However, annuities and their providers have come under criticism in recent years thanks to high fees and inappropriate selling tactics. On the plus side, there is some expectation that annuity rates could rise as a dwindling pool of customers forces providers to become more competitive.

Q: I already have an annuity. Do I have to stick with it?

A: Yes. But if you bought the annuity recently, check with your provider as to whether you have time to change your mind. Many are extending their 'cooling off' periods in the wake of the budget changes.

Find the best annuity rate for your circumstances

Q: With so many choices, I'm still not sure what to do with my pension pot.

A: The Government has promised £20 million to providers to give 'impartial face-to-face guidance' to every customer. These new rules are currently short on details, however, so you may have to consult an independent financial adviser at your own expense.


Q: What's a Nisa?

A: A Nisa is a new individual savings account. In effect, it's a new Isa.

Q: What's new about it?

A: From 1 July you will be able to put up to £15,000 into a Nisa instead of the current £11,520 (rising to £11,880 on 6 April). You will also be able to deposit the whole amount into cash if you wish, instead of splitting it between a cash Isa and a stocks and shares Isa as is currently required.

Q: What about Isas opened between 6 April and 1 July?

A: They will automatically become a Nisa.

Q: I have far less than £15,000 to spare for an Isa. How will I benefit?

A: You won't benefit from the new higher allowance. However, you will soon be able to switch between stocks and shares and cash, which will give you more freedom over your money.

Find out everything you need to know about the new pension rules and how to plan ahead for the retirement you deserve with our new magazine, How to Retire in Style. The magazine is available to buy now from all leading newsagents, or can be ordered online at moneywise.co.uk/retire

This feature was written for our sister website Money Observer

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Your Comments

What does the NISA mean for those of us who currently have both a Cash ISA and a Stocks and Shares ISA each with a different provider? Will I now have to restrict my savings to one provider for both parts? If that's the case then the changes are actually bad news for someone like me who doesn't have enough spare cash to reach the limits on either as it is!