Impartial Pensions Guidance
From the age of 55 you have choices on how to take your benefits but you don’t actually have to retire to take them. (NB – the government is considering changing the minimum age limit from 55 to 57 from the year 2028).
As individuals have been granted greater freedom over taking their retirement benefits, the government has introduced free, impartial guidance to help people make informed decisions via:
- Pension Wise (www.pensionwise.gov.uk)
- face-to-face through Citizen Advice Bureaux
- telephone with The Pensions Advisory Service.
Tax-Free Cash Sum
So long as you are 55 or over, up to 25% of your accumulated fund can usually be taken as a tax-free cash sum.
Example: Mr Smith has £100,000 funds in his SSAS and has never taken any benefits before. He now wants his maximum 25% tax-free lump sum, leaving £75,000. As he has taken his maximum lump sum, no more can be paid from these residual funds in the future
Income
Can be paid by:
- taking a pension capital withdrawal (formally called an ‘uncrystallised funds pension lump sum’ in legislation, which simply means funds from which you’ve yet to take any benefits, ie ‘crystallise’ them). Here, you tell us how much you wish to withdraw from your SSAS and up to 25% may be paid tax-free, with the rest being paid under PAYE at your highest marginal rate.
Example: Mrs Jones has £100,000 in her SSAS. She has never crystallised any benefits and she wishes to take £40,000 by way of pension capital withdrawal. 25% (£10,000) is paid tax-free and the £30,000 balance is then paid to her under PAYE. Mrs Jones still has £60,000 uncrystallised funds left in her SSAS, from which she can take a future capital withdrawal or a tax-free lump sum and/or an income
- paying it from your still-invested funds by way of “income drawdown”. The drawdown pension can be from zero to as much as you like, even up to exhausting your entire accumulated fund. There are, in fact, two distinct forms of drawdown pension, as follows:
1) capped drawdown – where you have previously accessed your funds under the rules that applied before 6 April 2015, whether by a lump sum and/or income, and means that the level of income you could receive is ‘capped’ at a maximum level. In many cases this type of drawdown can continue after the 6 April 2015 and one of the possible advantages is that your potential maximum pension contributions may remain at the higher level. You may convert to flexi-access drawdown – see below
2) flexi-access drawdown – this is the name that applies to drawdown that starts after 6 April 2015. When you access your pensions savings in this way you can choose to take all or part of of them. In other words, there is no limit on the maximum amount you may choose to take.
Pension payments are made net of income tax and can be taken on a flexible basis, eg monthly, quarterly, annually etc.
If you take income from any pension fund by way of flexi-access drawdown or pension capital withdrawal, the maximum you may contribute reduces to £10,000 (2015/16 tax year).
