UK pension changes cause massive disruption



In a series of widespread UK pension changes the UK government has changed the landscape for UK pension holders, the most important of these are:

  • The UK government have now stopped public sector pensions (bar local government) from being transferred out of the UK
  • Private defined benefit pensions escaped the same fate after much debate, they could easily be stopped in the future
  • All other schemes can now be accessed at 55, however there are huge tax consequences


The 2014 budget and subsequent amendments set out the most radical UK pension changes ever which fully came into effect on 6 April 2015. These UK pension changes have affected almost every private or public sector UK pension.

Unfunded public sector pensions were most hard hit

The most drastically affected schemes under the UK pension changes are unfunded public sector pension schemes, these are:

  1. NHS pensions
  2. Teachers pensions
  3. Armed Forces pensions
  4. Civil Service pensions
  5. Firefighters pensions
  6. Police pensions

The schemes listed above were permanently locked in from 6 April 2015. This means that if you are a member of one of these schemes you lost your statutory right to transfer out of these schemes. Because you can no longer transfer out of these schemes you need to receive them as a pension out of the UK, unfortunately, this can mean that you pay more tax than might be necessary.

Originally it was proposed that private final salary schemes would be locked as well… while they are not currently they could be in the future

When the first draft of the legislation came out all final salary and defined benefit schemes in the UK were going to be locked in. The initial thinking behind this was to protect the stability of the source the Governments largest bond purchasers – large final salary scheme pension schemes. After much debate the legislation was scaled back to only deal with the unfunded public sector schemes defined above.
However, with the UK economy still not out of recession it is foreseeable that the legislation could again easily be amended to include these schemes. Given the swiftness with which the last set of legislation was introduced it would be prudent for anyone that is holding a final salary pension to review their options.

All other UK pensions are about to get ultimate benefit flexibility…but at a price

The second most radical UK pension change is that members of defined contribution pension schemes and funded defined benefit schemes will be able to access their entire pension fund from age 55 and pay tax at their marginal rate on 75% of the withdrawal (with the other 25% being treated as the tax free pension commencement lump sum).

Other UK pension changes that took effect 27 March 2014

  1. The trivial commutation limit increases from £18,000 to £30,000.
  2. The maximum income permitted under capped drawdown increases to 150% of the GAD rate.
  3. The minimum income threshold for flexible drawdown to £12,000 from £20,000.
  4. The maximum size of a small pension pot which can be taken as a lump sum, regardless of total pension wealth is increased from £2,000 to £10,000, and the number of personal pots that can be taken under these rules will be increased from two to three.


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