New government legislation on pensions

New pension legislation in 2015 introduced in a set of new rules that give retirees much greater freedom over what they can do once they retire. That includes measures and regulations such as automatic enrolment and different tax relief on your pension after you pass away. The new pension reforms also opened the door to many choices about what you can do with your retirement savings upon retirement.


All recent governments have implemented some pension reforms that incentivise pension saving as the average lifespan has increased. Many employers don’t offer premium defined benefit pensions that were once very common in the past.

The new pension reforms also touched how stateprivate and occupational pensions need to be managed, how much a retiree can draw from their pension pot and when, and who can draw from the pension pot upon death.

The key points of the recent pension reforms are the following:

Pension freedoms

Before the pension reforms, those that retired with a defined contribution pension had one choice – buy an annuity so that you can have an income for the remaining days of your life.

Nowadays, much has changed in that regard. Under the current pension guidelines, you can take up to 25% of the pension as a tax-free lump sum once you become 55 years of age, the remaining 75% can be drawn in a flexible manner, for example:

You can purchase an annuity, draw a regular income, take ah-hoc payments or even draw the full value of your pension in one go – subject to tax rules.

The New State Pension

Before the new reforms, there was a two-tier pension system that consisted of a basic state pension and an additional state pension. As of April 2016, that system was replaced by a single-tier pension system known as the new pension system. Receiving a state pension is possible if you meet two requirements:

  • Minimum 35 years of national insurance contributions
  • Minimum ten years of national insurance credits (or contributions)

You can also change the age at which you can retire. At the moment, you can retire after you reach 66 and that’s the same retirement age for both women and men. According to the current government strategies and plans, the retirement age is likely to increase in the future.

Passing on a pension

Under the old pension law, if the retiree died, the beneficiaries needed to pay a significant tax on the inherited pension.

Under the new pension law, if the retiree dies before their 75th birthday, the money within the pension can be passed on tax-free. If the retiree dies after 75, then the beneficiaries will need to pay only a marginal rate of the income tax on the monies held within the pension.

Pensions Auto-Enrolment

The new pension reforms also influenced employers‘ obligations. Due to the new auto-enrolment regulations, employers are obligated to include all eligible employees in a pension scheme and make regular contributions to their pensions. The employer is bound by law to pay at least 3% of the qualified income to the pension, whereas the employee needs to participate with 5% of “qualified income”.


Upcoming Pension Reforms

Pension reforms are bound to happen in the future, and that’s an undisputed fact. Almost every new government tries to add something new or change something in the existing model.

Pension tax rules are a key area that needs to be watched. That’s because they hold the key to how contributions into the pension are taxed, and how an income can be drawn once in retirement. This can all have a profound impact on your pension pot.

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