The government has relaxed the rules around pension access for people who are seriously ill and young people who have inherited a pension pot.
A raft of changes have been made to the rules around pension flexibility to ensure people are able to access their pension and are not unfairly penalised with large tax bills.
In the Budget documents the government sets out its plans to 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, in other words 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%.
Younger people who inherited a pension were also penalised under the flexibility rules and changes have been made.
Under the old rules dependants 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 dependant had to pay income tax up on withdrawals up to the age of 23.
However, over the age of 23, the dependant 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.
Claire Trott, pension expert at Talbot and Muir, said: ‘Since the changes in the death benefits were introduced, there has been an issue for those children deemed dependant. When they reached the age of 23 they had to cease income or pay additional charges to access the funds after this age.
‘The Budget states that it will rectify this…This is welcomed and has been raised by many in the industry and something that was grossly unfair and clearly just a drafting issue. Many other changes that have been flagged have not been address for years, if at all, so it is a pleasant surprise and will create a simpler death benefit system.