New pension rules for 2015 Explained

New pension rules for 2015 Explained by Tom Bunkham Pensions â€" an important consideration for everyone, no matter the stage of their career they’re at.We’ve already covered the basics regarding state pension, as well as what you need to know about automatic enrolment. And with the huge changes that have recently happened to pension rules, we spoke with The Money Advice Service to take a look at just how you could be affected.To find out what you what you need to know about the shake-up, and how the new rules will have a big effect on your money once you retire, read on…How pensions used to workBefore the changes, those who had built up a defined contribution pension (personal or workplace pensions where you pay into your own pension pot) could usually take up to a quarter of their pot as tax-free cash when they retired.The rest was often used to buy what’s called an “annuity”. This usually provided a guaranteed retirement income for life.Anyone with an employer’s salary-related pension scheme (al so called a defined benefit pension scheme such as a final salary or career average scheme) will not be affected by the new rules whilst within the scheme.The new rulesThe new rules have given people with defined contribution schemes far more choice over what they can do with their pension pots.Unless you are in very poor health, you usually need to be aged 55 or over to access your pension pot. When you do, there are now several ways you can access your pension fund. You can:buy an annuitykeep your pension fund invested to provide you with a flexible retirement income â€" called drawdown (the income is not guaranteed for life)take small cash sums from your pot when you want themtake all your pot as cash in one gomix the different options aboveIf you take it all as cash, you can usually take up to 25% of the withdrawal tax-free and you then pay tax on the rest at your marginal, or highest, tax rate.If you choose the annuity or drawdown options you can take up to 25% of the amount us ed for this option as tax-free cash. The rest can be used to buy an annuity or enter a drawdown arrangement. You then may have to pay tax on the income you get from these.Many don’t have a single pension pot. If mixing your choices, you can use different parts of one pension pot. You may choose to use different pots for different options, or combine smaller pots for one or more options. Not all providers will offer all options â€" but you have the right to shop around.You can find out more about the options for using your pension pot on The Money Advice Service site here.Where to get helpBefore you decide what to do talk to Pension Wise, a new government service that offers free and impartial face-to-face or telephone guidance.Pension Wise can help you understand what to think about when considering your choices, such as your plans to continue working, your personal and financial circumstances, and leaving money after you die.You’ll also get help understanding the different opti ons available and pros and cons of each. Plus you can discuss the tax implications of each choice.However, Pension Wise won’t tell you how to use your pension pot or invest your money.   It also can’t recommend companies. After speaking to them, you can consider getting further financial advice.To learn more about Pension Wise, click here.What to watch out forAfter any tax free sum, any cash you take from your pension pot is added to the rest of your annual income â€" so you’ll pay Income Tax on this in the usual way.You could be pushed into a higher tax bracket and you could end up paying higher-rate (40%) or even additional-rate Income Tax (45%) on the lump sum or any income. If you no longer meet the eligibility requirements around income and savings on some means tested benefits you might also miss out or have your payments reduced.Be careful of scamsIf you are receive unsolicited calls offering deals to invest your pension pot that seem too good to be true, there’s ever y chance they are. Scammers have been targeting people with promises of amazing investments or ways to reduce tax. Some even say they can help you access your money before you are 55.If you are being pushed to act fast or told of loopholes to get you more money tax free, don’t rush into any decisions. Before you agree to anything or sign on the dotted line, call the Pensions Advisory Service on 0300 123 1047 for more information.Find a job What Where Search JobsSign up for more Career AdviceSign up for moreCareer Advice Please enter a valid email addressmessage hereBy clicking Submit you agree to the Salaries