In April 2015 new pension rules were introduced which, the Chancellor George Osborne claimed, would allow people to be free to choose what they do with their money.
Generally, from the age of 55, pension savers can start to take their money out of their pension pot.
Previously, pension savers were only allowed to take up to 25% of their pension pot as a tax free lump sum. The remaining amount was used to purchase a financial product, such as an annuity or a drawdown scheme, in order to provide a regular income for the savers retirement.
Now the pension saver can choose what to do with their pension pot. This can include taking the whole amount as a single lump sum, with the first 25% tax free and the rest being taxable. The tax rate will depend on their other taxable income in the year.
Alternatively the pension saver can take regular chunks of money out of their pension pot, with 25% of each withdrawal being tax free and the rest being taxable.
Any remaining savings can continue to be used to purchase a financial product to guarantee a regular income for the saver's retirement.
When considering the options, the pension saver should seek proper pension advice to ensure that they have enough money for their retirement, and tax planning advice to minimise their overall tax liability.
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