Financial Resilience – May’s “Hot Tips”

Our free calendar “Hot Tips” aims to ensure everyone in Scotland knows about the organisations and services available to them, and provides information on how to make the most of later life.

Our topic for May is financial resilience and provides some simple tips for managing your money. Geraldine Day, our team member who focuses on Money Advice, introduces us to some of the recent changes to pension rules.


The rules around pensions have changed significantly over the last few years and will have a major impact both on how you save for retirement and access your money once you retire. New pension rules introduced in April 2015 have given people far more choice over what they can do with their pension pots.

These new rules only apply to people in defined contribution schemes (personal or workplace pensions where you build up your own pension pot). If you are in a defined benefit pension scheme (also known as an employer’s salary-related pension scheme such as a final salary or career average scheme) you will not be affected by the new rules.

You need to be 55 or over (or in very poor health) to access your pension pot.

There are several ways you can now use your pension pot. You can:

  • Buy a guaranteed income for life – an annuity.
  • Invest your pot in funds designed to provide you with a flexible retirement income – called drawdown (the income is not guaranteed for life).
  • Take small cash sums from your pot when you want them.
  • Take all your pot as cash in one go.
  • Mix the above options.

If you take cash, 25% of the withdrawal is tax-free (the other 75% is taxable). If you choose the annuity or drawdown options you can take up to 25% of the amount used for this option as tax-free cash. The rest is used to buy an annuity or goes into drawdown. You then pay tax on the income you get from these.

Any cash you take from your pension pot is added to the rest of your income for the year and you pay Income Tax on this in the usual way. If you take a large sum of cash you could push your income into a higher tax bracket and end up paying higher-rate or even additional-rate Income Tax on the lump sum. This increase in income may also mean you are no longer eligible for benefits you’re claiming.

Everyone aged 55 or over can have a free and impartial face-to-face or telephone guidance from Pension Wise. Pension Wise is a government service that helps you understand what you can do with your pension pot money. Before you decide what to do we recommend you make it your first port of call and then get financial advice.

Information included in this blog was provided by “Tax Help for Older People”. Visit their website for more information.

Download your 2015 Hot Tips Calendar here and get information and advice throughout the year. Here’s what you’ve thought about Hot Tips so far:

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