UK Government Sets Out Further Pension Freedom Reforms for Over-55s

UK workers around retirement will be given greater freedom to use cash from their pension pots, the Treasury has announced.

The government said that over-55s will be able to access "as much or as little" as they want from their defined contribution pension funds (made up of contributions, rather than calculated from an employee's final salary) from April next year.

The legislation from the Chancellor George Osborne means that workers around retirement will not have to take out the cash in one go.

At the moment, over-55s can take out a quarter (25%) of their pension in one tax-free lump sum.

But the move from Osborne means 25% of each cash withdrawal will be tax free and the rest will be taxed at its marginal rate in the future.

"People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long term economic plan," Osborne said.

"From next year they'll be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax free."

More details on the new legislation will be outlined in the House of Commons on 14 October.

The move comes after the UK government's radical pension reforms announced earlier in the year.

Tom McPhail, head of pensions research Hargreaves Lansdown, warned that the reforms have been "exciting" but could have a "horrendous" end.

"Hargreaves Lansdown is broadly supportive of this whirlwind of pension reforms; they have the potential to revolutionise and reinvigorate investors' appetite for long term savings, something which is badly needed after decades of underfunding," McPhail said.

"However the Chancellor is also on a reckless joyride of pension reform, it's exciting but it could well end in the most horrendous retirement income car crash."