The government has said it will simplify pension rules so that over-55s will be able to draw tax-free sums from their pension when it suits them.
Under the existing rules, from the age of 55 people can take a 25% tax-free lump sum, but from April, you will no longer have to draw the whole pension pot in one go, instead a series of withdrawals will be permitted.
The first 25% of each sum drawn will be tax-free, with the other 75% taxed at the individual’s marginal rate.
As a result pensions will be able to be used like a bank account, with the customer being able to draw income whenever it suits them. As part of the Pensions Bill, the new rules are expected to be in place for the start of the new tax year on 6 April 2015.
Chancellor George Osborne said: “From next year, people will 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 family 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.”
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