Minor pension changes see relaxation of rules for seriously ill and young

Wed 16 Mar 2016

A raft of changes have been made to the rules around pension flexibility to ensure people who are seriously ill and the young are able to access their pension and are not unfairly penalised with large tax bills.

The Budget has announced rule changes to remedy anomalies and injustices created unintentionally by pensions freedom.

The new rules allow those in serious ill-health to take lump sums from their pension even if the pension has been accessed. Previously, lump sums could only be taken if a pension scheme had not been crystallised, i.e. no money had been taken from it.

People who have less than a year to live are able to take their money from their pension pot tax-free up to age 75. After age 75, the money will be taxed at their marginal rate of income tax whereas previously it suffered a flat rate tax of 45%.

Young people inheriting a pension were also penalised under the flexibility rules and this has now been addressed.

Under the old rules dependents who inherited a pension from someone who was below the age 75 would receive the pension tax free but if the pension was inherited from someone over the age of 75, the dependent had to pay income tax up on withdrawals up to the age of 23.  However, over the age of 23, the dependent could pay tax of up to 70%.

Now, those over the age of 23 will continue to be taxed in the way they were before they reached 23.

Author: Mark Brownridge