June 16th, 2015

Pensions – Pensions

You have seen the stories, you have heard the news, pensions are changing and it is time to take stock and consider how this may affect you and your plans for retirement.

Most of you will be aware that you have the ability to take up to 25% of your pension fund as tax free cash.  Since April 2015 you can either take the 25% tax free cash from your pension as a lump sum, or have a proportion of any withdrawals taken paid out tax free.  What does this mean for you, well greater flexibility is the answer.  If you don’t need to take all your lump sum in one go, the remainder of your money can remain invested, allowing you to continue to benefit from growth within your fund.

With effect from April 2015 pension investors, from age 55, now have total freedom on how they choose to use their pension monies. You can choose to take the whole fund as a cash lump sum, take a regular income or take small lump sums as and when needed.

In theory the option to take your entire pension sum in one lump sum might seem very appealing.   Exotic holidays, new cars, etc are very tempting, but you can’t lose sight of the fact that you will need your pension to sustain you for the remainder of your life.  There is no one more than me who loves life’s non essentials and little luxuries.  The aim should be to have sufficient funds to enjoy life’s pleasures, whilst also avoiding pension poverty.  This is where financial advice is key and we can advise you how to maintain the balance.

You also need to be aware that any withdrawals over the 25% tax free cash amount will be taxed as income at your marginal rate of tax. If you are currently a basic-rate (20%) taxpayer, any income that you draw from your pension plan will be added to other income you receive, for example your state pension or salary. This additional income from your pension could potentially make you a higher rate tax payer (40%) or even an additional rate tax payer (45%).  Therefore careful guidance needs to be obtained when taking any withdrawals from your pension, otherwise your hard earned cash will merely be swelling government coffers.

Anyone with a defined benefit pension will be able to take advantage of the new rules and make unlimited withdrawals. To do so, they will have to transfer to a defined contribution pension. Anyone wanting to do this should be aware that they could lose very valuable benefits. When looking into this, you should always seek specialist independent financial advice.

There are also changes to death benefits and increases to the age that you can take retirement benefits.  Further details can be provided on request.

At Prosser Knowles Associates Limited, we have been reviewing these pension changes for some time and the potential impact that they will have upon our clients.  We are more than happy to offer a free initial no obligation meeting to discuss these changes and how they may impact upon your plans for your future.

For further information please click here to request a call back from one of our advisers.

 

Written by: Vanessa Coates – Financial Planning Consultant, Prosser Knowles Associates Limited

Prosser Knowles Associates Limited is Authorised & Regulated by the Financial Conduct Authority. The value of your investment can go down as well as up and you may not get back the full amount invested. The Financial Conduct Authority does not regulate Taxation and Trusts. The information in this document does not constitute advice or a recommendation for any product and you should not make any decisions on the basis of it.  Your home may be repossessed if you do not keep up repayments on your mortgage.

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