Your Retirement options

On 6 April 2015 new pension rules came into force, giving you much greater flexibility over how you use your pension savings and the options you have in retirement.

These changes include the freedom to access the whole of your pension fund, more choice over how to receive the tax-free cash from your fund, changes to death benefits and changes to the contributions you can make.

Whether you have a personal pension, a group personal pension or a stakeholder pension these new rules could have significant tax implications. It is therefore important to take advice on the various options open to you.

The following notes are by necessity brief and generalised in nature. With this in mind you may choose to get in touch with our pension specialist Jake Ward CLICK HERE or on 01483 266666. Jake will help you with information and help specific your circumstances without the waffle and the jargon!

Flexi-access drawdown

Flexi-access drawdown, in essence, places no limit on the amount of income you can take from your pension fund. This means that it would be possible to take the whole of your pension fund in one go, although it may not be tax efficient to do so.

You will be able to take 25% of your fund as a tax-free lump sum (if you have not previously used that fund for drawdown purposes), with the remainder of the fund staying in your pension to provide you with an income. If you will be dependent on your pension to support you through your lifetime you may need to consider taking a lower level of income to sustain you.

It is important to remember that the amount of flexi-access fund withdrawn to provide you with an income will be taxed at your marginal rate of Income Tax. If you take too much income, this may move you into the next tax bracket and result in you paying a higher rate of tax.

Income drawdown carries significant investment risk, as your future retirement income remains totally dependent on your pension fund performance. You should remember that if you access your tax-free cash early the benefits will be less than if you wait until your planned retirement age. Therefore, this option is only suitable for a limited number of people.

Pension lump sum

A new option, called the Uncrystallised Funds Pension Lump Sum (UFPLS), allows you to take a one-off payment from your pension or a series of lump sums leaving the remainder of the fund in your pension invested. Part of of each UFPLS is tax-free, with the balance subject to tax.

UFPLS is not available from any part of your pension that is already in drawdown.

Taking a UFPLS will trigger the restricted annual allowance known as the MPAA.

Capped drawdown

If you are currently in capped drawdown, you will have a maximum level of income that you can take each year and is regularly reviewed. This varies considerably against Flexi-Access Drawdown.

It is important to remember that if you make the decision to move from capped drawdown to flexi-access drawdown, the amount you can contribute to your pension each year will change.

Our pension specialist is Jake Ward on 01483 266666 who can help you cut through the jargon and give you the right advice according to your circumstances.

New death benefit rules

You can nominate someone to receive your death benefits – be it your spouse, children, grandchildren or even someone unrelated to you. You can also leave some or your entire pension fund to charity.

The beneficiaries of your pension fund can elect to take the fund as a lump sum or leave the fund invested and take an income under the new flexi-access drawdown rules. If they do choose the flexi-access option, they can take income as and when required or leave the funds invested.

What about tax on the death benefits?

The tax treatment of your death benefits will depend on a number of factor and we recommend that you take specialist advice in these matters.

Annuities

You will, of course, still have the option of purchasing an annuity. For some people, this may still be the right choice as it provides a guarantee of an income for life.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.