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From being restrictive and unattractive in a number of ways, pensions are set to become a great deal more appealing. From April 2015 many people should no longer need to buy an annuity (a policy that provides a secured income for the rest of your life). For new drawdown arrangements (where income is taken from the pension fund while still invested), maximum income limits will not apply. Instead, money purchase pensions such as SIPPs could have flexible retirement options, allowing lump sums to be taken at any time after the normal minimum pension age, and income that could be varied during retirement to accommodate changing needs. If you have a money purchase pension, from April 2015 the new rules could allow you to: Take the whole of your pension fund as a lump sum Receive a flexi-access pension income with no upper limit to beneficiaries tax free after you die Reconsider the role of your pension in relation to your estate and inheritance tax However, with flexibility comes responsibility. The government s message is loud and clear: It will give you flexible options to help incentivise planning for your retirement, as well as keep the valuable tax incentives that pensions have traditionally enjoyed, but it is up to you to use these powers wisely. An important factor in determining your pension income in retirement is your commitment to saving. Once in retirement, taking too much from your pension too early could mean you risk it running out later on.
When taking an entire fund as a lump sum under the new rules 25% of it would normally be tax free as it is now. However the remaining 75% would be subject to income tax. Particular care should therefore be taken regarding lump sums. It may be better from a tax point of view to stagger pension withdrawals in order to keep below a certain tax threshold. YOU COULD USE INCOME DRAWDOWN TO STAGGER PENSION WITHDRAWALS TO KEEP BELOW A CERTAIN TAX THRESHOLD
Under the new rules, after you have attained the normal minimum pension age (currently age 55), you could be able to dip into your money purchase pension pot whenever you like, take periodic lump sums, or a more regular income that can be varied up or down whatever suits your lifestyle or requirements. To do this you would require a pension with a flexi-access drawdown facility. The advantages of a lifetime annuity should continue to be considered, and for many people it could be more suitable. THERE ARE VARIOUS ANNUITY OPTIONS YOU CAN CHOOSE INCLUDING A PENSION THAT IS LOWER AT OUTSET BUT GOES UP WITH INFLATION A lifetime annuity exchanges your pension pot (or part of it) for a predetermined amount of income each year. ly, an annuity is payable for life, so although you won t have access to the money in your pension, again your income should not run out. There are various annuity options you can choose including a pension that is lower at outset but goes up with inflation. It is also possible to include provision to pay a pension to your spouse or civil partner with the advent of the new rules. There may also be new, more flexible annuity products available.
Pass on your pension Currently, when someone in drawdown dies, their pension pot is taxed at 55% though pensions paid to dependants (including spouses) are exempt from this. From 6 April 2015, if a pensioner with a money purchase scheme dies before age 75, the fund can be paid to any nominated beneficiary free from tax. On death after age 75 a nominated beneficiary would only have to pay income tax on the inherited pension pot when they take funds out of it. FROM 6 APRIL 2015, IF A PENSIONER WITH A MONEY PURCHASE SCHEME DIES BEFORE AGE 75, THE FUND CAN BE PAID TO ANY NOMINATED BENEFICIARY FREE FROM TAX There will be no restrictions on how much of the pension fund can be withdrawn at any one time, though drawing the entire fund of a pensioner who died after age 75 in a single lump sum will be subject to an interim special tax charge of 45%. So, people should be able to pass on their money purchase pensions to anyone they choose without paying a 55% tax charge; and those who inherit these funds should be able to keep it as a pension pot or, after paying any income tax payable, spend it how they wish.
(IHT) potentially applies if your estate is worth more than 325,000 (for tax year 2014/15) or up to 650,000 if you inherit your spouse s unused allowance. Any excess over the allowance is usually taxed at 40% when passed on to anyone other than a spouse or civil partner. As the IHT allowance includes the value of all assets, including your home, it affects a large number of people, but in many cases it is possible to reduce the effects by planning ahead. Pensions are generally outside a person s estate for IHT purposes, but currently if an investor has already started drawing income, or is over 75, the pot is subject to a special tax of 55%. PENSIONS ARE GENERALLY OUTSIDE A PERSON S ESTATE FOR IHT PURPOSES The new rules open up opportunities for inheritance tax planning. Assets held in a pension could potentially pass through generations of a family with little tax to be paid.
April 2015, when the new legislation comes into effect is not far away and it is worth examining your pension arrangements now and planning ahead. One option to consider is whether it worth consolidating your pensions into a single scheme so it is easier to organise your pension income when you get to your retirement age. However, be aware there could be exit charges or other drawbacks to transferring, such as the loss of guaranteed benefits. It is also worth examining your fund choices. Could you be getting a better return from different funds and having a wider choice? PENSIONS SUCH AS THE CHARLES STANLEY DIRECT SIPP COULD GIVE YOU GREATER BREADTH OF FUND CHOICE AND LOWER CHARGES THAN OLDER SCHEMES Are your funds too low or high risk for your or stage in life? Pensions such as the Charles Stanley could give you a greater choice of funds and lower charges than some older schemes. The changes are also relevant for those who haven t started saving towards retirement. These changes might make pensions more attractive, and the longer you have to build up a pension pot, the more opportunity there is to build a sizeable sum and reap even greater benefit from the new rules.
Saving for retirement has always been important, but as it becomes more financially demanding we need to make sure that we are making the best decisions for our future. Do you have other pensions? If you do, it could be time to examine their charges. You might be better off transferring them into a Charles Stanley. We offer: A wide investment choice over 7,000 shares, funds, investment trust and other investments Online account management makes managing all your investments easy Competitive charges SIPP administration for just 100 a year plus VAT. Click here to read our charges in full. Loyalty programme lower charges for all your accounts the more you hold with us plus other benefits. At Charles Stanley, we have been administering SIPPs for over 18 years, so you can rest assured you are dealing with an experienced company. Plus, like all Charles customers, you are supported by expert, impartial research and analysis to help with your investment decisions, as well as award-winning client service. Not yet registered with Charles? Click here to register and open a SIPP or Log in and transfer existing pensions. Key benefits of the Charles Stanley No set up charge and 100 + VAT annual administration charge Tax relief Competitive dealing rates for shares and live prices Commission-free fund pricing Annual platform fee of 0.25% or less No initial charges on most funds Online account access 24 hours, 7 days a week
Since 1792 Charles Stanley has built a reputation for integrity and strength in financial markets. Charles takes these principles into the world of direct investing and is committed to offering a fairer deal for the private investor by: Giving you a fair, low cost deal on platform fees; our Loyalty Programme aggregates all your stocks, shares and funds to give lower prices the more you hold with us. Using only clean-priced funds which pay no commission. This lowers cost and improves transparency for both new and transferred investments. Offering unbiased analysis and opinion through regular updates and articles. Providing you with someone to speak to on our experienced UK helpdesks, during working hours. Providing a quality online service that values and provides on all your pensions and investments wherever held. Being with you for the long term. Remember: take advice when you need it Your financial situation will evolve and you may encounter more complex issues that need expert attention. Even if you start out a DIY investor we can introduce you to a Charles Stanley Investment Manager or Financial Planner at any time, whether on the telephone or at one of our local branches.
This document is solely for purposes and does not constitute advice or a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual investors. If you are unsure as to whether an investment or a pension is suitable for you, please seek professional financial advice. This Guide is based on our interpretation of the Taxation of Pensions Act 2014, Part 4 of Finance Act 2004 (as amended) and associated Regulations, existing law, and H M Revenue & Customs published guidance as at the date of this Guide, all of which may be subject to change. While we believe this interpretation to be correct, we can give no guarantee in this respect. Charles Stanley & Co. Limited 2015. All rights reserved. No part of this factsheet may be reproduced or distributed in any manner without the written permission of Charles Stanley & Co. Limited, and accept no liability whatsoever for the actions of third parties in this respect. This document is issued by Charles Stanley & Co. Limited. Member of the London Stock Exchange. Authorised and regulated by the Financial Conduct Authority. Registered in England No. 01903304. Registered office 25 Luke Street, London EC2A 4AR. T 0131 550 1234. The tax treatment of pensions depends on individual circumstances and may be subject to change in future. 31.02_CSD