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New Pension Rules

The incredible new rules have now been confirmed and have turned pensions into the most flexible & tax efficient savings plans, given that your contributions to a pension receive tax relief and then grow virtually tax free over the years.

There is now no limit on the amount you can take from your pension (currently from age 55). If you wish to enjoy it over the early years of retirement that will be your choice. If you would rather invest it to make a sustainable income, or any combination of income and lump sum withdrawals then again, the choice is yours.

There are two new ways to facilitate this:

Flexi Access Drawdown.

This allows you to take up to 25% tax free lump sum, the balance of your pension fund is then invested in a Flexi Access Drawdown. From the invested fund you are free to take withdrawals of any amount at any time. This could be as regular monthly payments to meet your living expenses or one off withdrawals to fund things like holidays or new cars, but beware anything above the 25% will be taxed as income, so any ideas you have about ‘spending’ your pension fund should be very carefully considered. The media have been talking about withdrawing your fund to buy rental property. This makes little sense to us - why would you move a now highly ‘liquid’ tax exempt fund into a very ‘illiquid’ taxable asset?

Uncrystallised Funds Pension Lump Sum (UFPLS)

This option allows a lump sum of any amount to be taken from uncrystallised funds (funds from which benefits have not yet been taken) , and leaves the remaining funds invested and in the pension.

These lump sums are paid as 25% tax free/75% taxed as income. For those not requiring their tax free lump sum upfront, this is likely to be the most tax efficient method of receiving retirement income – 25% less income tax than would otherwise be the case.

Death Benefits

The new rules provide unparalleled opportunity to pass on wealth, free of tax. Previously once ‘crystallised’ the only way your fund could pass to someone other than your spouse was after a 55% tax charge. It is now possible to pass your pension fund on death without tax. If you die before 75 your beneficiaries will pay no tax at all, after 75 the fund is tax free but any withdrawals your beneficiaries make are taxed as income at their rate of tax.

All the old objections to pensions have been swept away. You must consider maximising contributions to pensions during your working life. The tax efficiencies are enormous. Equally you must get advice on the best way to withdraw your pension or it will be too easy to run out of money or pay far too much tax in retirement.

As experienced and qualified pension and retirement advisers we would of course be happy to help.