From April 2015, pension savers will now have considerably more freedom and choice as to how they draw on their accumulated pension funds.
In brief, everyone will have at least 3 choices:
- Use the “traditional” option of purchasing an annuity (guaranteed income for life) with 75% of your pension fund and take the remaining 25% of the pension fund as a tax-free cash lump sum
- Full withdrawal of your entire pension fund. As above, 25% of funds withdrawn would be tax-free, the remaining 75% would be added to other income earned and would be taxed at your highest marginal rate
- Flexi-access drawdown. This option will allow part or full withdrawal of both tax-free cash and the remaining 75% of the pension fund. You could withdraw just tax-free cash and nothing else, potentially accessing benefits very tax efficiently
Having outlined your options, there are five very important caveats:
- Do not assume your current pension provider will offer all of the above options, we expect many pension providers will be unprepared or unable to offer these options at launch. If they do offer these options, what will they charge you?
- Carefully consider the income tax (and Inheritance tax) implications of drawing significant taxable sums from your pension in one hit. A significant proportion could end up being taxed at rates in excess of 40%
- Your existing plans may contain valuable guarantees (guaranteed income at retirement or guaranteed growth rates on your fund) which should be considered before losing them
- Do you have penalties to pay if you were to access your benefits now?
- It is vital to understand how drawing pensions now may limit or affect your proposed future pension contributions.
Planning and maximising these new opportunities is key. Swindells Financial Planning is here to help you do just that. Please feel free to ‘Contact Us’ or call us on 01825 76 33 66 to arrange a free, no obligation, second opinion on your own situation.
How will the pensions revolution effect you?
Planning and maximising these new opportunities is key. To help you make informed decisions regarding your financial future in a relaxed and friendly atmosphere join us on 19th March for the next free Pensions Seminar.
For more details and to book your place visit to Pensions Seminar.
