Pension changes – is this the death of the tax free lump sum?
Are the latest changes to pensions announced last week the first step towards the widely anticipated abolition of the 25% tax-free lump sum. The “opportunity” to take each draw down with 25% tax free instead of a one off lump sum has been introduced as an additional flexibility, but is also a further incentive for those who can afford to do so to leave funds invested rather than taking a pension.
These new rules added to the recently announced option to gift away pension funds on death tax free to the next generation make the of the one-off tax free lump sum appear increasingly over generous and potentially more vulnerable to abolition.
The new rules are to be introduced from 6thApril 2015. What we end up with is an effective lower rate of tax on sums drawn from a pension of 15% for a basic rate tax payer and 30% for a higher rate tax payer.
My own view is that anyone who is able to do so should be considering whether it is appropriate for them to take their 25% tax free lump sum before 5th April 2015. As always please take proper advice first before making any significant financial decisions.
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