The Treasury has said today that over 55s will be able to withdraw several lump sums from their pension pots tax free, meaning their pot could effectively be treated like a bank account.
Currently, from the age of 55 people can take a 25% tax-free lump sum, but from April 6 2015 the lump sum restriction will be withdrawn and a series of payments will be allowed. The first 25% of each payment will be tax-free, with the other 75% taxed at an individual's marginal rate.
Chancellor George Osborne said: "From next year, they'll be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax free.
"For some people, an annuity will be the right choice whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown. We've extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum."
However Mark Pitcher at wealth manager Towry says extra flexibility brings extra responsibility: "It’s vital that retirement funds are not just frittered away. Everyone should have some form of long-term financial plan in place, tailored towards their specific goals and ambitions, and a pension is supposed to last you for life, not just to be largely spent at the point of retirement.
And pensions expert Tom McPhail of Hargreaves Lansdown warned that not all pension providers will be ready to implement the new freedoms: "The pensions industry is reeling from an unprecedented onslaught of legislative and regulatory change. Some providers have even already publicly waving the white flag and calling for some breathing space; it seems the Treasury is not listening."
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