Warren Shute is a chartered financial planner with Lexington Wealth Management. Contact him on 01793 771093 or warren@lexingtonwealth.co.uk

During the Budget earlier this year a number of ‘welcome’ pension changes were announced.

This included an improvement to the options and tax treatment of death benefits but we have only just been told what those improvements are which I will aim to explain.

Under the new rules (April 2015) crystallised funds (i.e. no lump sum or income taken), before age 75, will be treated in the same way as uncrystallised funds and can paid as a lump sum tax free. This gives a 55% tax saving compared to the current rules.

For both crystallised and uncrystallised pensions there will also be an option to take an income from the fund, which will also be tax free.

It can be payable to ANY beneficiary e.g. grown up children or grandchildren; not just dependants.

At age 75 all pensions are deemed to be crystallised even if the pension commencement lump sum (PCLS – or tax free cash) has not been taken.

Under the new rules the option to take the fund as a lump sum will still exist but the tax charge will reduce from 55% to 45% for the 2015/16 tax year, and from 2016/17 it will be at the beneficiaries marginal rate.

There will also be the option to take an income from the fund and this will be taxed at the beneficiaries marginal rate. This option will apply from day one of the new rules (in April 2015).

Both of the above can be paid to ANY beneficiary, not just a dependant.

Taking the entire fund as a lump sum post age 75 could mean the beneficiaries still end up paying tax at 40% or even 45% on some or all of it, dependent on their other income and the size of the pension fund.

For this reason the income option may be the better one to select as the income can then be planned alongside tax consideration.

This is clearly a complex area and advice should be sought from an Independent Financial Adviser if you are considering your retirement options.