UK Pensions 2015 – What Can You Do With Your Funds?

By Bill Blevins,
Financial Correspondent, Blevins Franks

2015 sees the introduction of a new pension regime in the UK. It provides UK residents and British expatriates with a range of options for their pension savings. What will the changes mean for you? What can you do with your funds? 

After first being announced in the March budget, further reform was released in stages over 2014. It is therefore important that you are up to date on all the changes and latest legislation. There are different rules for different types of pensions, so it is rather confusing. 

In order to make an informed decision, you need to be aware of all the implications of all your options, for your long-term financial security, for your heirs, and from a UK and Spain taxation point of view. It is increasingly important to seek expert advice on the detailed implications and opportunities.

Here is a summary of the key changes from 6th April 2015, which apply to those with defined contribution schemes and aged 55 or over:

• You will have complete freedom to draw down as much or as little of your pension pot as you wish, with no requirement to buy an annuity. If you cash in your entire pension you will no longer be charged the 55% unauthorised payment tax charge. UK residents will pay tax at their marginal rate of income tax. For non-UK residents, where a double tax treaty applies, as is the case with Spain, taxation falls to their country of residence.

• You can take a series of lump sums from your pension funds without having to enter into a drawdown policy. 

• The 55% pension ‘death tax’ will be abolished. If you die under age 75, the balance of your fund can be paid to your choice of beneficiaries as a lump sum or drawdown, tax free. If you are over 75, beneficiaries pay their marginal rate of tax on the income. If they opt to take it as a lump sum, it will be taxed at 45%, though the government hopes to change this to the marginal rate from 2016. This applies to drawdown and annuities, but not to those in final salary pensions.

• If you have an existing drawdown plan, you can keep it as it is and retain the current income limits (150% of GAD). This may be of interest to you if you are still able to contribute more than £10,000 to your fund.

Many of the new pension options apply specifically to defined contribution schemes.  From April 2015 those with private sector defined benefit pensions could transfer to a defined contribution scheme, but be aware that you could lose valuable benefits. Transfers can only be made with advice from a pension transfer specialist regulated by the UK Financial Conduct Authority. Most Public Sector schemes will not be able to transfer after April 2015.

It is essential to consider the tax implications here in Spain to establish what would work best for you.  

This article can only cover the key points of the new legislation and only provide a summary. There are also other elements you may need to consider. Sound financial planning and personalised advice is crucial, particularly for those with larger funds. Do not make any decisions until you have all the information and understand all the implications. 

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

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