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A short guide to the new pension rules

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The revamp of the state pensions in the UK was presented to us in March 2014, and came into effect at the beginning of this month. The changes were devised by Chancellor of the Exchequer George Osbourne and his staff. This article will hopefully help you to wrap your head around some parts of the new system that you might not understand

In a way, George Osborne has revolutionised the way pensions work by turning them into a kind of bank account that can be withdrawn from whenever you like. He’s managed to do this by abolishing the 55% tax rate that previously faced us when taking more than we should from our pension. His closest staffers have been referring to the policy as radical and clever, but until it’s been rolled out in full and in place for at least a couple of years there’s no way to know whether it will be a positive or negative change to millions of people.

The parts of the reform that will affect us most noticeably are probably the tax changes, for example:

  • Savers can pass on what’s left of their pension pots to loved ones without being taxed after death, as opposed to the 55% tax that currently stands
  • Husbands and wives whose partners pass away before the age of 75 will get income from their spouse’s pension tax-free.


Financial services like Nutmeg’s personal pensions are rapidly gaining popularity, proving that the subject is at the forefront of many people’s minds at the moment. Treasury forecasts assume that the spending will be large, but these numbers aren’t set in stone. They believe that if cash can be pulled out of their pension at a lower rate of tax, it will bring in £320 million more in tax, with this number rising to £1.2 billion in 2018-19. These figures on the surface look very promising, but whether the system works for everybody cannot just be judged in terms of how much tax the treasury receives.

Those who benefit most are those with large pension pots, as basic patterns of withdrawal over time will lead to you paying far less tax on your pension than you would have before the change. Try to keep it in mind that withdrawing money bit by bit over a number of years will always leave you better off (in the long run!) than taking a lot at once.

The age that we start to receive our pension is 55, but it’s not likely to stay this way for long with the retirement age to increase to 68 in the near future. The age that pensions are opened up for use is a decade before the retirement age, so we should expect that to rise too.

The new system has been said by some to be turning your pension pots into a bank account that only opens when you hit a certain ago. This is actually a rather good description, as when bank accounts are drained, that is final and we must deal with the consequences. Just remember that if you’re tempted to splash out on a holiday to Spain or a week in a five star hotel. This FT article asks whether the pension changes will come back to bite Britain, do take a look!


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