New flexibilities

Major pension reforms have been introduced by the Government in 2014 and 2015.

Before April 2015, individuals retiring from DC schemes had to purchase an annuity policy (which provides a guaranteed income for life) or use income drawdown. Under income drawdown, individuals were able to withdraw money from their pension pot each year but the amounts withdrawn were subject to a cap.

From April 2015, individuals with DC pensions have had much more freedom and flexibility when taking their benefits. Provided an individual has reached age 55, he or she is able to take all of his/her pension pot as a cash lump sum. As is the case currently, 25% of the cash lump sum can normally be taken tax free, with the balance being subject to income tax at the marginal rate of tax. DC members can also leave their pots invested and ‘drawdown’ on funds with complete flexibility. In addition, DC members continue to have the option of buying an annuity.

When making choices at retirement DC members should consider a range of factors including tax implications and the impact on income later in retirement of taking cash out in the early years. Anyone with a DC pension can get free, impartial guidance from the age 50, from the Government’s Pension Wise service.

Because the Scheme is a DB scheme, it will not offer the new DC flexibilities. Members wishing to access these flexibilities would need to transfer their Scheme benefits into an approved DC scheme. Before doing so, they must take independent financial advice.