MyLovelyRetirement.co.uk

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IMPARTIAL GUIDANCE:

 

George Osborne has stated his intention is for everyone to have access to free impartial guidance to help them understand their options.

 

This service will be provided by independent organisations, rather than pension schemes and providers.

 

We offer impartial and independent advice to those who are faced with the decision now. Contact us for a free consultation:

Budget 2014: Greater Choice In Pensions

You build your pension fund up over many years with a lot of hard work so it is absolutely right that you should have the freedom to choose how and when you take the benefits of that fund.

 

From the budget in March 2014 and the subsequent Taxation of Pensions Bill (published on October 14th) fundamental changes are proposed; this page aims to help you understand those changes so that you are better able to make informed decisions.

 

Don't waste the opportunity to look at your options and compare the market; contact us before you do anything and let us help you maximise the benefits from your pension fund.

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MyLovelyRetirement.co.uk (MLR) is a trading style of Farsight Financial which is authorised and regulated by the Financial Conduct Authority.

How The System Worked - Before The Budget:

Under the current pension system there is some flexibility for those with either very large or very small pension funds, but the majority of people in the middle have few options. As a result around three-quarters of people who retire buy an annuity.

TAX-FREE CASH:

 

You can take up to 25% of your pension pot tax-free.

 

You should check with your existing insurance company to make sure you are not entitled to more than 25% under your existing plan - you would lose this entitlement if you transfer elsewhere.

 

 

 

 

 

INCOME:

 

Using the remaining 75% of your pension pot (after your tax-free cash) you can: 

  • Invest in a capped drawdown plan which allows you to take income from your pot; but there's a maximum amount you can take each year - 120% of the equivalent annuity.

  • Purchase an annuity, an insurance product that pays a sum of money to you each year for the rest of your life.

  • Take out a flexible drawdown policy where there's no limit on the amount you can take from your pot each year; however, you must already have guaranteed retirement income of more than £20,000 per year to qualify.

LUMP SUM:

 

If you are aged 60 or over and have total pension savings of less than £18,000 you can take them all in one lump sum - known as trivial commutation.

LUMP SUM:

 

If you are aged 60 or over you can take any pension fund (maximum of 2 funds) worth less than £2,000 as a lump sum - known as small pot.

How The System Works - Now:

From April 2015 it is proposed that the system will be overhauled completely; but in the meantime there have been some changes to help people now. Of course, it may still be the right solution for many to buy an annuity.

TAX-FREE CASH:

 

You can take up to 25% of your pension pot tax-free.

 

You should check with your existing insurance company to make sure you are not entitled to more than 25% under your existing plan - you would lose this entitlement if you transfer elsewhere.

 

 

 

 

INCOME:

 

Using the remaining 75% of your pension pot (after your tax-free cash) you can: 

  • Invest in a capped drawdown plan which allows you to take income from your pot; the maximum amount you can take each year has increased to 150% of the equivalent annuity.

  • Purchase an annuity, an insurance product that pays a sum of money to you for the rest of your life.

  • Take out a flexible drawdown policy where there's no limit on the amount you can take from your pot each year; the guaranteed retirement income required has dropped to £12,000 per year.

LUMP SUM:

 

If you are aged 60 or over and now have total pension savings of less than £30,000 you can take them all in one lump sum - known as trivial commutation.

LUMP SUM:

 

If you are aged 60 or over you can now take any pension fund (maximum of 3 funds) worth less than £10,000 as a lump sum - known as small pot.

What Is Proposed For April 2015:

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From April 2015, from age 55, whatever the size of your defined contribution (money purchase) pension fund, it is proposed that you will be able to take it how you want, subject to your marginal rate of income tax in that year.

TAX-FREE CASH:

 

You can either take the tax-free cash all in one go with any subsequent withdrawals taxed as income or take a series of withdrawals and receive 25% of each tax-free.

 

So, for example, if you have a pension fund of £100,000 you could:

  • Take £25,000 tax-free with subsequent withdrawals taxed as income. Or

  • Take a series of withdrawals over time of (say) £1,000 per month with £250 tax-free and £750 subject to income tax.

 

Depending on your tax situation and/or whether you actually required all your tax-free cash upfront, the second option might be more appealing.

 

INCOME:

 

You will have total flexibility on how you take your income (after your tax-free cash) from your pension. You can: 

  • Take the whole fund as income in one lump sum.

  • Take smaller amounts of income as and when you wish.

  • Take regular withdrawals of income using either a drawdown plan or annuity contract.

 

Any withdrawals over your tax-free limit will be taxed as income at your marginal rate; so if you are a 20% taxpayer the income you take from your pension fund could move you into the 40% (or even 45%) tax rate.

PENSION 'DEATH' TAX:

 

At the moment if you have taken either tax-free cash or income from your pension fund and you die before age 75 any lump sum paid from the fund is subject to a tax charge of 55%.

 

In future how old you are when you die will decide how your pension fund is treated.

 

If you die before age 75:

  • Your beneficiaries will be able to take the whole pension fund as a lump sum or take income from it, using a drawdown plan, tax-free.  Your dependants (not your beneficiaries) will also be able to buy an annuity although then the income would be taxed.

 

If you die after age 75:

  • Your beneficiaries will be able to take the whole pension fund subject to 45% tax. This tax rate is proposed to fall to the beneficaries' marginal rate of tax from 2016/17.

  • Your beneficiaries will be able to take a regular income from it, using a drawdown plan, subject to income tax at their marginal rate. Your dependants (not your beneficiaries) will also be able to buy an annuity; again taxed at their marginal rate.

  • Your beneficiaries will be able to take ad-hoc lump sums using a drawdown plan; again taxed at their marginal rate.

RETIREMENT AGE:

 

At the moment you can access your pension fund from age 55 but this will increase in the future.

 

From 2028 the age will be 57 and it will then go up in line with rises in the State Pension Age; it will be set at 10 years below the State Pension Age.