UK pension rules and changes are not as simple as they may seem

I have a couple of pensions in the UK and I have heard that changes are taking place that mean that I will be able to take out all the money in there and use it as I wish. I will soon be 59 and am interested in taking control myself. Can you tell me if this is correct, and if so what I need to do? BM, Abu Dhabi.

A significant change in the way people with UK pensions can take benefits from many plans came into effect on April 6. From this date, anyone age 55 or over with a defined-contribution pension plan will have a new option. A defined contribution plan is one in which the benefits are based on contributions and fund performance rather than the length of service with an employer and salary. Previously, money built up in pension plans had to be used to provide an income, often by buying an annuity, although that has not been compulsory in most cases for many years, with other options being available.

The big change is that from April 6 money in the plan can be taken as a cash lump sum, but it is a bit more complicated than that. The first 25 per cent can be paid free of tax, but above that amount there will be tax to pay. In short, any amount taken over the first 25 per cent will be subject to UK income tax at the individual’s marginal rate, so the larger the amount taken the higher the rate of tax payable. This will be the same for anyone who is not resident in the UK, as the pension income is “arising in the UK”. Some providers will allow huge flexibility, others will restrict the number of withdrawals. People will need to check with their pension provider to find out the specific options. Any monies in a defined benefit, also known as a final salary plan, cannot be withdrawn in this way, and while there may be an option to transfer to a different arrangement in some cases, this will not apply for any money in UK statutory (government) pension plans, which cannot be encashed in any way.


This is a complicated topic and it is best to take qualified professional advice before taking action.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years of experience. Contact her at keren@holbornassets.com. Follow her on Twitter at @FinancialUAE

The advice provided in our columns does not constitute legal advice and is provided for information only. Readers are encouraged to seek appropriate independent legal advice

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