Employees who have recently taken a tax-free lump sum from their defined contribution (DC) pension scheme will be given a further 18 months to decide what they wish to do with the rest of their retirement savings.
Under current tax rules, once a tax-free lump sum has been taken, individuals have six months before they are required to make a decision regarding their pension, either by buying an annuity or entering into capped drawdown. If this is not done, the lump sum is then taxed at 55%.
The extension will allow pension scheme members to take advantage of the new pension flexibility announced by the government in the Budget 2014, which will come into effect from April 2015.
It follows the government’s announcement on 27 March that it would take action to ensure employees do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next, instead of buying a lifetime annuity.
David Gauke, exchequer secretary to the Treasury, said: “In the Budget, the government announced the most fundamental change in the way that people access their pension in almost a century, ensuring that more than 400,000 people who have worked and saved hard will be able to access their retirement savings more flexibly.
“However, we recognise that decisions people take regarding their pensions are important and take time.
“This extension to the decision-making period will give people the opportunity to take full advantage of the new flexibilities introduced in the Budget.”