I’m afraid that as you have a defined benefit pension, also known as a final salary pension, the new freedoms don’t apply. This means that in order to take a lump sum from your pension, you would need to transfer out of your defined benefit scheme into a defined contribution scheme. Given the guarantees that defined benefit pensions have, for many members this course of action would disadvantage them in retirement.
Another issue is that is it not possible to take any benefits from a pension until you reach 55, unless you are retiring due to ill health or you joined the scheme prior to 6 April 2006 and the scheme had a non- standard retirement age. For example, the age was 35 for pre-6 April 2006 members of the Professional Footballers’ Pension Scheme.
If you were 55 and your pension was a defined contribution scheme, you could take out money whenever you like.
If you do make withdrawals, then 25% of the fund is tax-free and any sum taken over and above this amount would be taxable at your marginal rate.
Our expert financial planner discusses tax issues regarding the new pension freedoms.
Mark Hibbit is a chartered financial planner at Soverign Independent Financial Advisors.