Tag Archives: Pension Freedoms

Pensions – Good News And Bad News

Pension Tax

Over the last few years the Chancellor George Osborne has created a pension revolution that has been welcomed with open arms.  He has introduced freedoms that allow pensions to be accessed easily or passed down the generations free of inheritance tax. Higher and additional rate taxpayers continue to receive tax relief on contributions at 40% and 45%.

So what next? From April 2016 new regulations will be introduced restricting the amount high earners can pay into pensions to £10,000. And there is speculation that George is looking to further restrict the current tax relief system by introducing a flat rate of tax relief, possibly 25%, rather than the current system of claiming tax relief at the marginal rate.

We don’t know what the Chancellor will say on Budget Day but the advice is clear. Higher rate taxpayers planning on making pension contributions should do so before 16th March to make sure they maximise their tax reliefs and planning opportunities. And if cash flow is an issue, think about switching some ISAs or speaking to your friendly bank manager – it’s too good an opportunity to miss.

For help planning your retirement contact Tony Brierley (tony.brierley@pmm.co.uk), Antony Keen (antony.keen@pmm.co.uk) or Richard Hesketh (richard.hesketh@pmm.co.uk) for further information.

PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

When Pension Freedom Isn’t Free – FCA To Consult On Scrapping Exit Charges

shutterstock_138231248Following the introduction of pension freedoms allowing people over the age of 55 to access their pension pots, many people have found that free means paying penalties or exit fees! On older style contracts it is not unusual to find that exit penalties apply up to the nominated retirement age Although modern contracts tend to be much more cost effective, these can be as much as 10% of the value of the fund, amounting to thousands of pounds.

The Treasury has confirmed that excessive exit charges enforced by some pension providers will be banned.  The precise level of the cap will be set by the Financial Conduct Authority (FCA), following a public consultation.

There is little doubt that the introduction of such a cap would be a positive step in the right direction in further restoring confidence in pensions and making them more transparent.

As the pension revolution continues full steam ahead, against the back drop of volatile world markets and further possible changes in tax relief, it has never been more important to review pension arrangements to make sure you are able to make full use of the financial and tax planning opportunities that exist.

For a free pension health check please contact Antony Keen, Director at PM+M Wealth Management, either by email at antony.keen@pmm.co.uk or by phone on 01254 604303.

PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

Pension Freedoms – What You Need To Know

shutterstock_147678989When George Osborne delivered his 2014 autumn statement, he announced that in the future you would be able to access your pension pots in much the same way as you do your bank account, and also be able to pass on your pension pot onto your loved ones. This created huge ripples across the pensions industry. The share prices of leading annuity providers fell sharply as a core part of their business was no longer the default product for retirement. Why would you lock yourself into a fixed withdrawal for the rest of your life and potentially lose a large nest egg for your heirs should you die early?

So it was with much excitement that on 6 April many of the new ways of accessing your pension became available. Except it is a bit more complicated than that.

First there is the tax. For those wishing to extract their pension in one go there is a substantial tax bill. After receiving 25% tax free as a Pension Commencement Lump Sum (PCLS), the remaining fund extracted is added to your income and taxed accordingly in that year. If you have income from other sources there’s a good chance that much of this lump sum will attract 40%, or maybe even 45% income tax.

In addition, if you don’t have a P45 in the current tax year, pension providers may apply a “month-one” tax code, treating the income as if you were to receive the same payment each subsequent month – thus meaning you pay a lot more tax than is due. Employed people may be able to claim back any overpayments during the year, but the self-employed will have to have wait until submission of their tax return the following year.

Apart from the tax, you will also need to consider whether your existing pension can allow you to access these new freedoms. The Telegraph outlines how Friends Life (part of the Aviva Group) are unable to offer Flexible Drawdown within their existing pension plans. Similarly, not all providers are offering the option of being able to draw your cash out in one go. For advisers this situation comes as no surprise – to expect legacy providers with creaking IT systems to be able to meet these new requirements and to completely change their business model in a matter of months was always going to be a challenge. Many people will need to change their pension provider to access benefits in the way they would like.

If you’re looking to take retirement benefits, you should take financial advice to find out and discuss what options are available to you, and to be aware of the tax consequences of any decision you make.

For more information or advice on how to efficiently access your pension pot, please contact Richard Hesketh on 01254 679131 or email richard.hesketh@pmm.co.uk.