Pensions – The new flexible world!
As many of you will have read in the press, from April 2015 those over age 55 will be able to have total access to their pension fund if you have what the industry calls a defined contribution pension. (This is normally something like a personal pension or a pension that is valued by the number of units it holds and a value per unit.)
The changes are cited as the most radical changes to pensions in nearly a century. Those who hold sceptical views about pensions have much less to be sceptical about now!
From age 55 individuals have always been allowed access to 25% of the pension fund value as tax free cash. In the past there were various restrictions about how the rest of the money could be taken. Typically, this was to either buy an annuity or draw an income from the fund while it was still invested.
The changes will still allow an individual to take 25% of the fund as tax-free cash but will also allow the rest of the fund to be withdrawn too. But beware! The funds withdrawn over the 25% tax-free cash will be added to the individual’s income for that year and taxed accordingly. I think that this will catch many people out who had not considered the taxation issues that will come with this ‘pension liberation’.
Carefully planned though, I think that the changes can add some real benefits to financial planning. It’s certainly given us some more creative ways of saving money in a tax efficient way. In addition to greater access, the tax charges on death have been changed so that pension funds can effectively be passed down the generations in an inheritance tax free manner. Another tool in our financial planning bag!
There are of course some deeper aspects to this which may be relevant depending on individual circumstances. Of importance here is understanding your options and acting on them.
Free guidance on this area is available at www.pensionwise.gov.uk although for specific advice we are always happy to help!