2015 is set to herald some brand new rules which are set to transform the way pensions are viewed. George Osbourne has radically swept aside some of the restrictions (and taxes) associated with accessing your pension giving the UK one of the best, and most generous, pension systems in the world.

Better Access

Gone is the annual restriction on how much you can take from your pension. Pensioners will now be able to access their pension pots in full. The chancellor’s announcement that ‘No one will have to buy an annuity…’ appears to be great news for everyone in that, in future (from April 2015), you will be able to access your pension pot when you want and how you want. But should you?

As is often the case the story is not quite so simple and it all comes down to tax. Take out too much from your pension and it will be taxed at your marginal rate; in other words any withdrawal is added to your other income and taxed at your highest rate (in many instances this would result in a tax rate of 40% and in some instances 45%).

Better to instead view your pension as a lifelong investment plan offering ongoing favourable tax benefits and investment opportunities.

Less Tax

Currently, in some cases, your beneficiaries could receive what is left of your pension pot less a 55% tax charge.

From April this rule will also be removed meaning that in many cases the amount inherited will be free from tax or at the very worst will only be taxed at the beneficiary’s marginal rate of tax.

Generous Tax Relief

Contributions to a pension remain, for the vast majority, the most tax effective way of building a pot of money for their retirement. With an annual allowance of £40,000 (and often scope to contribute more) most people have the opportunity of benefitting greatly from the generous ‘leg up’ that tax relief gives a retirement fund.