Pension changes from April 2015

In April 2015, changes were made to the pensions system to give people more freedom over how they can save, invest or spend their pension benefits.

For defined contribution pension schemes, where you (and your employer, if you have one) pay money into a pension, the changes include the following:

  • You are able to access all your pension savings flexibly from the age of 55.
  • You will no longer have to buy an annuity when you retire.

The April 2015 changes do not affect defined benefit pension schemes, where your employer promises to give you a pension when you retire. But you may be able to transfer to a defined contribution scheme, which would allow you to take advantage of the new flexible rules.

A professional financial adviser will be able to give you advice about the best option for you and your family’s situation.

Be aware of pension scams. These can take many different forms and are increasing in the UK.

What has changed?

On 6 April 2015, changes were made to the pensions system. These changes have given people more freedom over how they can save, invest or spend their pension benefits.


Defined contribution schemes

A defined contribution scheme is where you (and your employer, if you have one) pay money into a pension. This is invested and will hopefully grow. If you have one of these schemes, the changes include the following:

  • You are able to access all your pension savings flexibly from the age of 55.
  • You will no longer have to buy an annuity when you retire. Annuity is a financial product you can buy using a lump sum of money (for example, from your pension scheme). This will give you a guaranteed income for the rest of your life.

Your options from age 55

You can now choose to:

  • take all or part of your pension savings as one or more lump sums
  • invest your pension savings in a flexi-access drawdown fund and take part of them out when you like
  • use your pension savings to buy an annuity to give an income
  • access your savings using any combination of lump sum withdrawals, flexi-access drawdown and an annuity. Flex-access drawdown is when your pension savings are invested in a fund. You can take money out of it to give an income, and lump sums when you like. There are no limits to how much you can take out.

Lump sums

If you decide you want to take out all of your pension savings in one go, you can. You will get 25% of your savings tax-free and you will pay tax on the rest as income. Before April 2015, you were only able to take out all your pension savings if they were less than £30,000.

Taking lump sums now will mean less retirement income later on.

You can also choose to take out some of your savings as a smaller lump sum. You can do this as many times as you like. In each case, 25% of each lump sum is tax-free and the rest is taxed as income.

If you currently pay tax at the basic rate of 20%, a large lump sum from your pension may push you into the higher tax band of 40% (or even 45%). It’s important to take financial advice (see below).

We have more information about how you can take lump sums from a defined contribution scheme.

Flexi-access drawdown

When you retire, you can choose to invest your pension savings in a flexi-access drawdown fund. This would mean you can take out your savings as often as you like.

Before April 2015, there were a lot of restrictions on income drawdown schemes which limited when and how much you could take out. Everyone can now take cash out of their retirement savings as and when they want. This is known as flexi-access drawdown. The pension savings left invested are still growing.

At the time you move your savings into a flexi-access drawdown fund, you can take up to 25% of your pension savings as a tax-free cash lump sum. The full amounts of any lump sums and income you take out after that are taxable.

It is possible to run out of money when invested in a flexi-access drawdown fund. It’s important to get financial advice to work out the best option for your situation.

You may run out of money if:

  • you take out too much of your pension savings
  • your investments perform badly
  • you live longer than expected.

Before April 2015, pension savings invested in an income drawdown scheme could only be left to your dependants when you died. This was normally your spouse or children. Any money taken out as a lump sum was taxed at 55% unless left to charity.

Now you can leave your pension to any person you choose. If your beneficiaries (people who inherit your money after you die) decide to take your pension savings as income, they will:

  • pay tax on it as income if you are aged 75 or over when you die
  • pay no tax if you die before the age of 75.

If they choose to take it out as a lump sum, they will:

  • pay tax at 45% if you are aged 75 or over when you die
  • pay no tax if you die before the age of 75.

We have more detail about your options when you have a defined contribution scheme.

Annuity

This is where you can use part or all of your pension savings to buy an annuity when you retire. This will give you a guaranteed income for the rest of your life. Your pension scheme may offer you an annuity. But you always have the option of shopping around and buying your annuity elsewhere to get a higher income.

The main changes to annuities are:

  • the reduction in tax on what you leave when you die
  • the possibility of new types of annuities.

At the time you use your savings to buy an annuity, you can take up to 25% of your pension savings as a tax-free, cash lump sum. The full amount of any income you get from the annuity will be taxed.

If you have or have had cancer, you’re likely to qualify for an impaired-life annuity. This will pay out a higher income than you would normally get as it pays more to people with certain health problems. Unlike flexi-access drawdown, there is no risk of running out of money. The income is guaranteed for the rest of your life.


You can choose different types of annuities. Some pay an income that continues to be paid out to someone else after your death until they die (this can be anyone you choose). Some others pay a lump sum or an income for a short period if you die within a few years of buying the annuity.

If you are aged under 75 when you die:

  • income and lump sums that your beneficiaries get are tax-free.

If you are 75 or older when you die:

  • income that your beneficiaries get is taxed as income
  • lump sums are taxed at 45% in 2015–16 and as income after that.

In the past, annuities have provided a level income (one that increases each year) or an income that goes up and down depending on the value of the investment fund. From April 2015, new flexible annuities are also allowed. With these, the income can go up and down as you choose. For example, you might want a high income in the early years of retirement that falls later on, and then could increase again if you need to pay for care.

We have more detail about your options when you have a defined contribution scheme.

Which is the best option for you?

The best option for you will depend on:

  • whether you want to leave any savings to beneficiaries
  • how much income you and your family need to live on
  • whether you have any income from other sources
  • how long you expect to live.

You do not have to choose just one option. For example, you might use part of your savings to buy an annuity. This could give you a secure income and leave you to use the rest flexibly.

It’s very important to speak to a financial adviser to make sure:

  • you choose the best options for you
  • your pension withdrawals do not affect your state benefits
  • you are not left with a big tax bill.

See below for more detail on talking to a financial adviser.

Free guidance

The government is giving free guidance on the new rules, under a scheme called Pension Wise

You can also call our financial guides on 0808 808 00 00 to talk about any of the changes in more detail.

The guidance will help you to understand your options, but can’t give recommendations. If you want help deciding on the right option for you, you should contact a financial adviser. See pages below for information on paying for financial advice.


Defined benefit schemes

A defined benefit scheme is a pension scheme where your employer promises to give you a pension when you retire. This is usually based on your salary and how long you have been a member of the scheme. The April 2015 changes do not affect defined benefit schemes. However, if you have a defined benefit scheme, you may be able to transfer to a defined contribution scheme. This would allow you to take advantage of the new flexible rules.

Transfers may be allowed if:

  • you have a public sector funded pension scheme (for example, a Local Government Pension Scheme)
  • you have a private sector pension scheme.

No transfers are allowed if you have an unfunded public sector pension scheme.

Transferring your defined benefit scheme would mean you are giving up a secure pension. If there are other benefits included such as pensions for your dependants and life insurance, you will also be giving up these.

Before you do this, it is very important to speak to a financial adviser and consider the advantages and disadvantages.

If the value of your defined benefits are £30,000 or more, you will have to get financial advice before you’re allowed to make a transfer.

We have more information about when the value of your defined benefit pension is no more than £10,000, or if the total value of all your pension benefits is no more than £30,000.


Financial advice

A professional financial adviser will be able to give you advice about the best option for you and your family’s situation. They can also shop around to make sure you get the highest income from your pension.

When your financial adviser gives you advice, they will need to find out about you and your priorities. They can then:

  • recommend the best thing to do for your situation
  • recommend what financial product to buy
  • explain why it is suitable for you.

Using a financial adviser means you’ll get a greater level of protection if they give you advice that later turns out to be wrong. There’s a system to deal with complaints and, where necessary, to put things right.

How much does it cost?

A financial adviser will charge a fee for their service. Pensions can be a complicated area. Specialist advice is a good way of making sure you think about all your options and make the most of your pension savings.

Financial advisers must agree their fees with you and how you will pay them in advance. You may agree an upfront fee or you may allow the adviser to take their fee from your pension savings. You may also agree to pay the fee in instalments. Many financial advisers will offer the first meeting for free.

Finding a financial adviser

You can find a financial adviser by asking family and friends for a recommendation, or by visiting these websites:

Always make sure the financial adviser is authorised by checking their entry on the Financial Services Register.

You should tell the adviser what you want to do. For example, if you want advice on your retirement options due to your cancer diagnosis.

The financial adviser should arrange a meeting to talk about your needs and ask questions about your finances and personal situation. They will then:

  • research the options offered by your pension
  • advise how the options could affect your tax position and eligibility for benefits
  • decide on what they would recommend
  • get quotes on the income or lump sum you can expect to receive.

If you’re happy with their advice, they will do any applications for you. They may need to share all your medical information and contact your doctor. This is to make sure you get the highest income possible if you choose an annuity.

Things you and your financial adviser should think about

  • What is the right choice for my cancer prognosis?
  • Could I get an enhanced or impaired-life annuity?
  • Could an increase in savings or income affect my means-tested benefits (benefits you may be able to get if your income and savings are below a certain level)?
  • How much tax would I pay if I cash in part or all of my savings?
  • Are my family provided for if I die?
  • Which option is best for my dependants? If I died while still in employment, my pension scheme may pay out a lump sum called death-in-service. But not if I choose to retire.

Please call our financial guides on 0808 808 00 00 if you would like to talk about this in more detail.


Pension scams

Pension scams can take many different forms and are increasing in the UK. Some offer a ‘once-in-a-lifetime investment opportunity’, pension loans or upfront cash to convince people to transfer their pension savings. Some people are offered the chance to get their pension benefits earlier than they would normally be allowed to.

Some people have reported telephone calls offering them free pension reviews and have been pressured into making bad decisions about their savings. They may have taken out their pension savings without understanding the tax penalties. In some cases, people have been talked into transferring their pension into a high-risk investment and lost thousands of pounds, leaving them with less money for their retirement. They can also be faced with a large tax bill from HM Revenue & Customs.

If you get one of these calls, you should contact The Pensions Advisory Service. They can explain any warning signs and identify any risks or illegal activity.

If you think you might have already been targeted by fraudsters, you should contact Action Fraud on 0300 123 2040.

Warning signs to look out for include:

  • Phrases like ‘once-in-a-lifetime investment opportunity’, ‘free pension reviews’, ‘legal loopholes’, ‘cash bonus’, and ‘government endorsement’.
  • Getting unexpected phone calls, text messages or a door-to-door caller.
  • Your money being transferred overseas.
  • Being pressured to transfer money quickly.

To find out more about how to spot scams and what to do, read The Pensions Advisory Service information about pension scams.

Back to Pensions

Understanding pensions

There are many different pension schemes available, including the State Pension paid by the government.

State pensions

The State Pension is a regular payment you can get from the government when you reach retirement age.

Workplace pensions

A workplace pension is a pension scheme arranged through your employer. There are different types of workplace pensions.

Personal pensions

Personal pensions are often available through your workplace. But self-employed people often have them too.

Defined benefit schemes

A defined benefit scheme is when your employer promises to give you a pension when you retire.