This move follows an announcement on 27 March that confirmed that the government would take action to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying a lifetime annuity.
Under current tax rules, once a tax free lump sum has been taken, individuals have six months before they are required to make a decision regarding their pension, either by buying an annuity or entering into capped drawdown. Currently, if this is not done, the lump sum is then taxed at 55%. This extra time will allow people to make the right decision for their pension.
Exchequer Secretary to the Treasury, David Gauke, said, “At Budget the government announced the most fundamental change in the way that people access their pension in almost a century, ensuring that over 400,000 people who have worked and saved hard will be able to access their retirement savings more flexibly. However, we recognise that decisions people take regarding their pensions are important and take time. This extension to the decision making period will give people the opportunity to take full advantage of the new flexibilities introduced at the budget.
At the budget, the Chancellor announced that by removing the effective requirement to buy an annuity, people will have greater flexibility in accessing their pensions.
This means that people can choose how they access their defined contribution pension savings; for example they could take all their pension savings as a lump sum, draw them down over time, or buy an annuity.
Alongside this, the government has introduced a number of other measures, including: reducing the amount of guaranteed income people need in retirement to access their savings flexibly, from £20,000 to 12,000.
They will also be increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000 and increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity and; increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and
increasing the number of personal pots that can be taken under these rules from two to three.
The government is also introducing a new requirement for pension providers to make sure that everyone retiring with a defined contribution pension pot receives free and impartial face-to-face guidance on the choices they face when deciding how to use their retirement savings.
