The 55% tax charge on pensions - how does it work and what's changing?
The government will abolish the 55% tax charge on pensions in April 2015 – what does the change mean?
If you save into a ‘defined contribution’ pension – one where the amount you have at retirement isn’t directly linked to your salary – there can be a nasty tax sting in the tail. For some people there's a large tax bill if they pass their pension onto others when they die. From April 6th 2015, this tax charge of 55% will be abolished. How will the change work?
Do you know how much tax you'll pay if you take money out of your pension?
Research shows that only one in three people know how much of their pension they pay tax on and many don’t know what they’ll pay
If you’re planning on taking a lump sum out of your pension after April 6th, make sure you understand how much tax you’ll pay on it. Research carried out by Yougov for SavvyWoman and Just Retirement shows that many people are confused about the tax rules on pensions. If you earn £29,000 a year, and have a pension fund of £17,850, you’ll pay tax at 40%.
How will the government's Pension Wise guidance service work?
If you are retiring after April 5th, you may be able to get free guidance from Pension Wise – a government initiative.
If you retire after April 5th 2015, you may qualify for free and impartial ‘guidance’ on what you can do with your pension. Not everyone will be able to get this free guidance. It will only be on offer if you have a ‘pension pot’ type of pension (rather than a salary-related one). You will be able to get guidance by phone, online or – depending where you live – face to face.