November 21st, 2014
The Future of your Pension
Sweeping proposals have been announced by the government in the most recent budget, which will potentially radically overhaul the pension landscape. For anyone approaching retirement it has never been so important to consider taking pension and retirement planning advice.
The changes mooted are currently in the consultation phase. However if the proposals are formalised, from April 2015, all bets will be off and you will have free reign to access your pension pot, however you choose. What this essentially means is that if you decide to withdraw your entire pension fund in one go, you can, albeit 75% of it will be taxed at your marginal rate of tax.
‘Happy Days’ you might think, as you sign on the dotted line for that brand new sports car or book that round the world cruise. Fast forward 10-15 years and the picture might not be so rosy as your funds deplete and you face the prospect of a lifetime of beans on toast for supper!!
‘With great power there must also come great responsibility’ the saying goes. Never a truer word was spoken in regards to these changes. Although being able to access your entire pension pot gives you great autonomy, it is imperative that you take professional advice as to how you utilise these monies. Life expectancy is the highest it has ever been and therefore the probability is that your pension fund will have to sustain you for a long period of time. Your monies will need to be invested and managed to support you and the standard of living that you aspire to.
Generally speaking only 25% of your pension pot can be taken tax free. As detailed earlier the remaining 75% will be taxed. The monies you receive will be categorised as income and so will be subject to income tax. Anyone taking out a large sum of money in one go, may well find themselves subject to 40% income tax on a portion of it. Therefore taking out smaller chunks of money over the years may be the more sensible option. Taking appropriate planning advice is therefore of paramount importance.
Of course, some changes have already come into play. Since 27th March 2014, if your total pensions are valued at under £30,000 and you’re aged over 60 you may be able to take these as a cash lump sum. This is known as “pension triviality”. The £30,000 limit applies to all your pensions, including the capital value of all work pensions you have built up and any pensions in payment (apart from the state pension). Only 25% of this pot will be tax free.
The new rules also allow you to take three small pension pots under £10,000 each as cash, providing you meet certain criteria. More people will also now qualify for flexible drawdown, an option that allows you to take unlimited, taxable withdrawals from your pension if set conditions are met.
With all these changes afoot, it has never been so important to think about your pensions and seek advice. At Prosser Knowles Associates Limited, we have the expertise, knowledge and the capability to help guide you through these decisions. A bumper budget for cruise companies and sports car makers it may well be deemed to be, but at Prosser Knowles Associates Limited we want our clients to be able to enjoy the best that life has to offer, whilst at the same time ensuring that they are protected for the future.
For further information please click here to request a call back from one of our advisers.