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Pension reforms update

Major pension reforms came into effect on 6 April 2015. In a recent press release HMRC has confirmed that over 230,000 savers have already taken advantage of the new landmark freedoms to access over £4.3 billion from their pension pots.

The new rules allow those aged 55 and over new opportunities to access their pension pots and new choices as to how to use their defined contributions pension savings. There are three main options available: a lifetime annuity, flexi-access drawdown and a lump sum payment. These options can be used on their own or in combination.

The Economic Secretary to the Treasury, Harriett Baldwin said:

'It's only right that people should have a choice over what they do with their money and in their first year our successful pension freedoms have already given thousands of people access and responsibility over their hard-earned savings.'

The first 25% of a lump sum payment is tax free. The amount of tax to pay on the balance of any pension withdrawals depends on the amount of payments that are received in the tax year plus any other taxable income.

Since the pension reforms came into effect, the government has also announced that they are working to introduce a cap on early exit fees although it is expected to take some time until the changes become effective. New rights for people who already hold annuities to sell them will also be introduced from April 2017.


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