Over-55s get green light to use their pension like a bank account

Under the proposals, which were initially outlined in this year's Budget and have been set out in the Pension Tax Bill today, people will be able to take a series of series of lump sums from their pension fund instead of just one from April 2015 (see MoneySavingExpert.com's Pension Need-To-Knows guide for more).

Chancellor George Osborne says the plans will help people access as much or as little of their defined contribution (DC) pension as they want to. He says: "People who have worked hard and saved all their lives should be free to choose what they do with their money."

Currently, people who want to take their pension as a lump sum can only take 25% of their pot tax-free. The remaining 75% can then be placed in a drawdown account, where any money taken out is taxed at their marginal rate, or used to buy an annuity. If they want to withdraw the whole pot, they're charged 55% tax.

Under the changes individuals will be able to take a series of lump sums from their pension fund, with 25% of each payment tax free and 75% taxed at their marginal rate of income tax in that year. They will not have to enter into a drawdown policy.

The reforms are part of an overhaul to give people greater flexibility and choice over what they do with their pension money and are expected to see fewer people using pension savings to buy annuities.

The Chancellor also recently announced that from April people will have the freedom to pass on their unused DC pension to any nominated beneficiary when they die, with the pension inheritance tax being axed for some (see the Pension inheritance penalty tax to be axed MSE News story).

The moves to allow people to spend their retirement savings on what they want, when they want, have prompted some pension experts to raise fears of a potential "retirement income car crash" with many people incorrectly planning for their future, although others have said it is time savers were trusted with their own money.