Introducing pension freedom
One of the biggest shake ups to pension regulations in years came into effect on April 6, promising to give greater flexibility over how we get to spend our pension.
By Kristen Durose, managing director, Red Star Wealth ManagementIn 2014 when Steve Webb, the Liberal Democrats pensions minister, suggested that we would be able to withdraw our entire fund and buy a Lamborghini, pension savers across the UK were excited at the prospect of getting their hands on their money and not being locked into the type of low annuity rates that have been prevalent.
Then came the detail: taxation, changes in death benefits, do you have to have a minimum level of guaranteed income?Add to that the insistence from some pension providers that you must seek financial advice before making decisions and the offer for ‘free, impartial advice’ made by the chancellor, which didn’t materialise, it is no wonder that the majority are left as confused as ever about pensions.
This feature will hopefully provide you with some of the detail, get rid of some myths and help you establish a clear idea of your options. Of course you can also arrange a meeting with Red Star Wealth, at our cost and without obligation, to discuss your personal circumstances.In the meantime here are some of the key points to think about:
- You no longer have to purchase a pension annuity, that is the regular income paid usually for life after you have handed over your pension fund. You can still do this if you wish, and for many people the security of a guaranteed income will still be favourable.
- You are not limited to one chance to take a single tax-free lump sum worth 25 per cent of your fund, with the rest taxed as income afterwards. Instead, you can make as many withdrawals as you want, each time getting 25 per cent tax free and the rest taxed like income, provided your scheme allows this. Of course if you do want a one off lump sum up to a maximum of 25 per cent of the fund value, you can do this.
- If you have already drawn your tax free cash using income drawdown, you might not necessarily have to make any changes to your current arrangements. It is still possible to use a drawdown plan to vary your pension income or take none at all.
- If you have pension benefits within an occupational scheme such as the NHS, you won’t be able to use the new freedoms unless you transfer your fund, which needs thorough investigation by a suitably qualified adviser.
You can only take money from your pension when you are 55 or older – other than in certain circumstances, like having a terminal illness – and there are still rules about how to do this without having to pay tax. Whatever your personal situation, professional advice is invaluable in investigating your options, and at Red Star Wealth we are here to provide that advice, honestly, openly and reliably.