Retirement should be an exciting time, and these days there’s more scope than ever to arrange your finances the way you want them. For example, you could continue to work and take your pension benefits. That flexibility is great, but it does mean that the financial decisions coming up need careful consideration.
New rules for pensions have recently been published by the Government, with more details on the changes that will apply from April 2015. This follows on from the initial announcement in the March Budget and gives a clearer picture of what these changes could mean for you.
Freedom to transfer your pension
People will now not face a ban on certain pension transfers. If you’re in a private sector defined benefit scheme (for example, a company pension that will pay an income linked to your years of service and salary), if appropriate you’ll still have the choice to transfer it to a more flexible kind of pension. That choice applies before you start taking the pension.
The option to transfer is also available for people who are in public sector schemes that are ‘funded’, which includes the Local Government Pension Scheme and Universities Superannuation Scheme.
Obtain professional advice
There’s an important safeguard here – before you proceed with this kind of transfer, you should obtain professional advice from an adviser who is not associated with the pension scheme and who is authorised by the regulator. There’s a lot to weigh up when considering whether to transfer your guaranteed pension.
As the Government has said, ‘for the majority of people, but not all, it will remain in their best interest to stay in their defined benefit scheme.’
Annual allowance of £10,000 once you’re taking a flexible income
The new rules commencing from April 2015 will apply to people who are in a ‘give and take’ situation. In other words, people who are still paying into a private or workplace pension and who are also taking a flexible income from a pension (an annuity or State Pension will not count).
These rules don’t apply if you’ve just taken your tax-free cash – they apply when you start to take a flexible income beyond that. In this situation, the amount you’ll be able to pay into your pension will drop to £10,000 a year.
55% pension death benefit tax charge
The Government has made it clear that it intends to reduce this tax rate. We’ll have to wait until the Autumn Statement later this year to find out the exact figure. This applies when a pension lump sum is passed on to your loved ones if you die aged 75 or older or where you’ve started to take an income from your pension.
Age 55 becomes age 57 in 2028
Under the new tax rules, the Government will increase the minimum age at which people can access their private pension from age 55 to 57 in 2028. This affects those born from March 1973 onwards and means people will need to wait until their 57th rather than 55th birthday to take money out of their private pension.
This change is also being extended to public sector schemes, except the Police, Fire Service and Armed Forces pension schemes, where the qualifying age isn’t changing.
25% tax-free cash continues
The right to take 25% tax-free cash hasn’t been affected – there had been some speculation earlier this year that it would be impacted.
Stay on track for the retirement you want
Saving for your retirement is one of the most important things you can do, and it’s essential to make sure you review your pension regularly and stay on track for the retirement you want. To review your situation, please contact us for further information. We look forward to hearing from you.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
