Greater choice and flexibility about how retirees use a
pension pot to fund retirement income

The 2014 Budget announced major changes to the way that members of a defined contribution pension scheme could access their pension savings. In March 2014, the Chancellor George Osborne announced changes to the pension world which would revolutionise the way members of defined contribution schemes could access their pension benefits. These wide-ranging changes move away from individuals being required to purchase an annuity and instead offer a number of different options for drawing their pension benefits.

 

From 6 April 2015, individuals will be able to access and use their pension pot in any way they wish after the age of 55. Until then, the rules about how much income they can access as a cash lump sum or through income withdrawal have been relaxed.

Historically, many people have used their pension pots to buy an annuity to provide a regular retirement income – and this option will still be available. But the changes being introduced offer retirees greater choice and flexibility about how they use their pension pot to fund their retirement income.

The changes come in two parts:

Transitional – these were introduced on 27 March 2014

Wider changes – these will come into effect on 6 April 2015

Changes that took effect from 27 March 2014

Following the Budget 2014 announcement in March 2014, there were several transitional changes that came into effect on 27 March 2014.

These included:

An increase in the trivial commutation limit from £18,000 to £30,000

An increase from £2,000 to £10,000 for the maximum lump sum that can be taken from one small pension pot regardless of others

The maximum number of pension pots that can be commuted in this way rose from 2 to 3

The minimum income requirement for flexible drawdown reduced from £20,000 to £12,000

An increase in the maximum drawdown limit, from 120% to 150%