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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 are far-reaching, and they 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 Mike Black CLICK HERE or on 01483 266666. Mike will help you with information and help specific your circumstances without the waffle and the jargon!

Flexi-access drawdown

The first of the new options is ‘flexi-access drawdown’ which, 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It is important to remember that the amount of flexi-access fund withdrawn to provide you with an income will be taxed at your marginal rate of Income Tax.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. The first 25% 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 – the Money Purchase Annual Allowance (MPPA) of £4,000.

Capped drawdown

If you are currently in capped drawdown, you will have a maximum level of income that you can take each year. This is reviewed every three years up until you are 75, and annually thereafter.

As of 6 April 2015, you can either continue taking capped drawdown or take advantage of the new flexi-access drawdown, whereby the amount of income you can take will be unlimited and there will be no further maximum income level reviews.

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. The £4,000 annual allowance is triggered when you take your first income payment from the flexi-access drawdown arrangement.

Our pension specialist is Mike Black on 01483 266666 who can help you cut through the jargon and give you the right advice according to your circumstances.  Mike loves talking but you can also email him on michael@oakwoodms.co.uk.

Flexible drawdown

Anyone currently taking flexible drawdown should have been automatically moved into flexi-access drawdown on 6 April 2015. This will have no effect on how you take benefits but will enable you to make tax-relieved contributions to your pension up to the Money Purchase Annual Allowance (currently £4,000 a year).

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 two things:

  • Your age when you die
  • Whether or not the funds are designated to your beneficiary within two years

If you die before your 75th birthday and your pension funds have been designated to your beneficiary within two years, they will be paid tax-free. However, if the beneficiary decides to take the pension as a lump sum, it will need to be paid within the two year period to remain tax-free. If the beneficiary chooses to draw down the pension, it doesn’t need to be taken within the two years but the administrator of the pension must be notified of their intention to draw an income.

If you live beyond your 75th birthday, or if you die earlier but your pension funds are not designated within the two year period, then the death benefits will be taxed – typically at the beneficiary’s marginal rate of Income Tax. The only exception to this rule is if they choose the lump sum option, and this was paid before 6 April 2016 (in which case it will be taxed at 45%).

If your beneficiary has not withdrawn the whole of the pension fund before their subsequent death, then the pension funds can be passed on again by your beneficiary.

It is possible to have unlimited successors meaning, in theory, that your pension fund could be passed on for generations if it is not all withdrawn.

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.

Contact Mike Black CLICK HERE for expert advice.

Please note that whilst every effort is made to ensure that the information contained within this explanation is correct, these notes are by necessity brief and of a generalised nature. We would provide specific personalised advice prior to finalising any arrangement.

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

It is important to note that not all personal pensions allow the facility to Self Invest and you should check the details of your existing pension if this is a requirement.

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

Tax concessions are not guaranteed and may change in the future. Tax-free means the investor pays no tax.

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This article is intended to provide a general appreciation of the topic and it is not advice.

For more information please contact Oakwood on 01483 266666 or email enquiries@oakwoodms.co.uk and we will be happy to assist you.

Article expiry: 05 Apr 2019

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Oakwood Mortgage Services Ltd
Oakwood Mortgage Services Ltd
5.0
Sharon Price
Sharon Price
15:30 12 Aug 20
In these current times Stuart has assisted me with a temporary solution to my mortgage issues which went very smoothly. I will be working with Stuart again very soon to change mortgage product completely. Thank you Oak wood Mortgage Services
Ben Brown
Ben Brown
16:38 31 Jul 20
I would like to say a huge thank you to Oakwood Mortgage Services and in particular to Richard Burley who seems capable of working miracles, particularly when dealing with the complicated applications of a sportsman. Richard’s calm manner and problem solving have been brilliant over the years and allowed both Katie and I to stay relaxed and in control during stressful house buying moments, as well as helping us to navigate the the complex buy-to-let market! We owe a huge debt of gratitude to Richard and Oakwood mortgage services ahead of moving house next week, and I would highly recommend their services. In particular I would recommend them to other sports people who have previously struggled with mortgage companies based on our short contracts and the potentially volatile nature of our work. Thanks again Richard. Ben and Katie
Gwenie Ralph
Gwenie Ralph
20:57 06 Jul 20
I gave Stuart at Oakwood Mortgage services a challenge of finding me an impossible mortgage. I knew I wouldn't get exactly what I wanted, but he came up with some nice surprises. He explained everything, not pushy at all, a friendly and professional approach. Thank you
nicky Myers
nicky Myers
19:17 25 May 20
We were first time buyers and dealt with Richard around the mortgage application. He helped us understand each process, explaining everything thoroughly and came to meet us twice where he was very personal and efficient. Dave took us through the building and contents and life insurance process, again coming to meet us in person and took us through the options, step by step. Dave was very communicative and answered any questions we had.Emma was there throughout this process and on hand with any urgent queries we had and was a delight to deal with.They managed to make it all happen, even during lockdown!Highly recommend Richard, Dave, Emma and Oakwood. We are very happy in our new home!
Daniella Castro Gouveia
Daniella Castro Gouveia
11:31 19 May 20
I have worked with a number of the Oakwood team over many years and they are all excellent and totally professional at what they do. Dave came to our family home a few years ago to discuss and advise us in terms of financial insurance. He was very knowledgeable, really easy to talk to. Sometimes discussing financial things can be quite tricky to understand, but I felt at complete ease with Dave. I would highly recommend speaking to him if you need insurance or even need a mortgage as he covers both areas. Thanks for all your support Dave. It's always good to have someone who has your back!
Richard Craven
Richard Craven
19:12 03 May 19
Stuart was excellent, helped me obtain a mortgage quickly and painlessly with minimal effort and was always ready to promptly answer any questions I had.
Andrew South
Andrew South
17:50 26 Mar 19
Stuart was very profession and friendly, He was there to help when something went wrong.Highly recommend!!
Ian L
Ian L
13:45 03 Jan 19
When we started looking for a house, we contacted Stuart based on a work colleague's recommendation. Having not bought a house in the UK before, we had a lot of questions.Stuart guided us through the process and was always available to answers questions and provide advice that was easy to understand.We had a protracted period between initial contact and purchase, in this time Stuart was patient, professional and provided us with a high level of confidence that we were in capable hands.A huge thank you to Stuart and the staff at Oakwood, we would not hesitate to recommend them.Ian and Yoosun
Claire Vince
Claire Vince
22:13 21 Dec 18
Great service. Paul talked us through everything really clearly and made the whole process very smooth and straightforward. We have recommended Oakwood to friends as a result.
Christopher Relph
Christopher Relph
23:27 29 Aug 18
The team is very friendly, professional and knowledgeable on their given subject. My situation was rather unusual and my options were very limited, if i had tried on my own i wouldn't have found the best deal for me. The information provided to me was well presented and insightful, if anything was unclear they made sure that i understood things fully. In the end they found the best deal out there that ticked all the boxes i needed and went above and beyond. To make sure i wasn't put into a position i couldn't afford to be in Stuart would go to an agent and tell them when things weren't possible, even when they were insistent on getting a deal, Stuart had my back in it!I can't recommend them enough, and will be returning to them down the line myself!
Sam Eccles
Sam Eccles
15:35 24 Jul 18
Top notch service. Friendly, prompt and accessible no matter where you are based (I'm in the Highlands). Much better service than that experienced by local face-to-face advisers with a large portfolio of companies that ensure you can get the mortgage to suit your needs. Have happily referred to others in less than usual circumstances, all of whom have come away delighted
Michelle Ames
Michelle Ames
18:20 07 Jul 18
Highly recommend. We were first time buyers and Stuart made the process simple and efficient. We found our property and made an offer on the spot, but the agents needed to speak to Stuart before stopping further viewings, so he dropped everything whilst at a conference and the rest is history. Buying a house is an emotional time, so having the mortgage element handled by a professional, yet down to earth person like Stuart was invaluable to us. Thanks Stuart.
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