Flexibility for members from 6 April 2016
Pension freedom is great news for members Changes in the law meant that from 6 April 2015 many members of pension schemes have increased flexibility over how they gain access to their pension. There are more options for taking retirement income and fewer restrictions on the amount that can be withdrawn as cash. Be aware of the tax consequences of accessing your pension pot Whilst the changes as of 6th April 2015 give more freedom in how you use your pension pot, it is worth remembering that you can leave your money invested until the date you cease working. As long as your money stays in your pension pot you don t pay tax on it. If you are 55 or older and wish to access some or all of your pension pot now, there will be tax implications, so it is important to take advice as to what is best for your personal situation. Staff at Welplan are not authorised to give independent financial advice. Watch out for pension scams You may have heard in the news recently that scammers are targeting people in the hopes of gaining access to their pension pot. Pension scammers will try to lure members with promises of one-off investments, pension loans or upfront cash. Most of these are bogus. The Pensions Regulator website has more information about the types of scams that are taking place, and what to do if you feel you have been targeted. Visit www.thepensionsregulator.gov.uk to find out more. Pension Wise is there to help make sure you use it Pension Wise is the Government s new, free impartial information and guidance service. It is there to help pension savers with their new freedoms, and understand the consequences of their decisions. It may also be worthwhile contacting an independent financial adviser who will look at your circumstances and recommend what you can do with the money in your pension pot.
Flexibility for members the options available Flexibility for members the options available Pension schemes are not obliged to provide all of the new flexibilities from the scheme itself. This document is intended to describe in broad terms the new flexibilities, and what Welplan Pensions does and does not do. When you reach your Target Retirement Age (TRA), you will have the following options available to you: Option 1 Leave your pension pot untouched Option 2 Purchase an Annuity Option 3 Get a flexible income Option 4 Take your whole pot as cash In Welplan Pensions, your Target Retirement Age defaults to your State Pension Age, however you can set your own TRA at any time. The earliest you can take your benefit is age 55.
Flexibility for members Flexibility for members the options available the options available Option 1 Leave your pension pot untouched You don t have to start taking money from your pension pot when you reach your Target Retirement Age. You can leave the money invested even if you re still working. As long as your money stays in your pension pot you don t pay tax on it. You can still pay into it up to your annual allowance as long as your employer continues to pay into the scheme as well. Your pension pot could grow further and give you a larger amount of money to last for a shorter amount of time. Whatever money you leave in your pension pot you can pass on tax free if you die before the age of 75. As with every investment the value of your pot could go up or down. Option 2 Purchase an annuity You might want to use your pension pot to buy an insurance policy that gives you a guaranteed annual income. This is called a lifetime annuity and will be payable for the rest of your life - or longer if you choose a guarantee Period and die before the end of that period. If you live longer than the guarantee period the annuity will continue for your lifetime. Under the old rules annuities could only be guaranteed for 10 years but from 6 April 2015 longer periods are available. You may also buy an income for a fixed number of years, rather than for your lifetime. Although these plans are often called fixed term annuities they are actually a form of flexi-access drawdown, which is explained below. There are lots of different types of annuities you must make sure you buy the right one for you. If you decide to buy an annuity you can still take 25% of your pension pot tax free as cash. You could then, for example, buy the annuity with the remaining 75%. Under current pension rules you have to buy the annuity within 6 months or alternatively use one of the other options. How much income you get each year from an annuity depends on things like: how much you had in your pension pot when you bought the annuity your age whether you want the income to increase each year whether you want the annuity to pay out to someone after you die your health and lifestyle
Flexibility for members the options available You pay tax on income from an annuity, just like you do on your salary. If the insurer you bought your annuity with goes bust you ll be covered for 90% of the claim by the Financial Services Compensation Scheme. The claim would be based on the value of the annuity at the time. Welplan Pensions use Mercer Annuities to search the whole of the market and recommend to the trustees a lifetime annuity provider based on the information provided to them by you. Welplan Pensions does not charge for this service. No commission or advisor charge is taken by Mercer from the insurer providing the lifetime annuity. Currently we cannot help you with obtaining a fixed term annuity. You do not have to take any annuity recommended to the Trustees and different providers might pay a higher income. So it s important to shop around. Remember that, currently, annuity purchases are a lifetime commitment so there s no rush to make a final decision. Annuity purchase rates can go up and down at any time and vary between insurers. Please note that you cannot obtain a lifetime annuity if you have a pension pot less than 1,000, and that you would need a pot of 2,000 or more to be able to receive an enhanced quotation, where lifestyle and health may affect the annuity you receive. Option 3 Get a flexible income There are currently 2 ways you can get a flexible income from your pension pot. The main difference is how you can take the tax-free part: flexi-access drawdown you can take 25% of your whole pot tax free in one go take smaller cash sums you can get 25% tax free each time you take money from your pot 3.1 Flexi-access drawdown Like an annuity, you buy a retirement product from a pension provider. This includes investing your pension pot into flexi-access drawdown funds and managing these funds. Welplan Pensions does not offer this form of drawdown from the scheme. So you would need to arrange a provider yourself if you wish to take this option. If you want independent advice you might want to talk to a financial adviser to help you with this. As with every investment there is the risk that the value of your fund can go up or down. You can take as much money as often as you want but there ll be a charge every time you withdraw money. Your provider will pay it to you after having taken off any Income Tax due. You should think about how much you take out every year and how long you want your money to last. Taking out larger sums can mean you pay more tax. You can leave your pot to someone when you die but they may have to pay inheritance tax on it. If the pension provider your fund is with goes bust you ll be covered by the Financial Services Compensation Scheme.
Flexibility for members Flexibility for members the options available the options available You could also still pay into the fund if you wanted to, up to a limit of 10,000 a year. This includes your tax relief of 20%. For example, to get a contribution of 10,000 you would only have to pay in 8,000. Tax free lump sum with flexi-access drawdown You can take 25% of your whole pot tax free in one go before you put the rest into a flexi-access drawdown fund. Example You have a pot of 80,000 and take a tax-free lump sum of 20,000. This leaves you with 60,000 to invest into flexi-access. If you take the tax-free lump sum, under current pension rules you must buy your flexi-access product within 6 months or use one of the other options available. 3.2 Take smaller cash sums from your pot You can leave your money in your current Welplan Pension pot and take money from it when you need it. How often you take money out and how much is up to you - 25% of each sum you take is tax free. This means you cannot take the whole 25% tax-free lump sum from your pot in one go. This option is a bit like a savings account. Welplan Pensions operate a monthly payroll to make payments. Example Your pot is 60,000. You sell a number of investment units, which might provide you with a cash amount of 1,000. 250 of this amount would be tax-free every time. The remaining 750 would be taxable. You could repeat this process during the year. Like with every investment there s the risk that the value of your fund can go up or down. You should think about how much you take out every year and how long you want your money to last. Taking out larger sums can mean you pay more tax. You could also still pay into Welplan Pensions if you wanted to, up to a limit of 10,000 a year, as long as your employer continues to pay into the scheme. You may hear this option described as UFPLS or Uncrystallised Funds Pension Lump Sum. Option 4 Taking the entire pot as cash in one go If you take your whole pension pot in one go - 25% is tax-free and the remaining 75% is taxable. Example Your pot is 60,000. You can take 15,000 tax-free. The remaining 45,000 would be taxable. If you re considering this option you should think about how you can use the money to give you an income in retirement.
Flexibility for members Flexibility for members the options available the options available Mixing your pension options You can mix your options but this is something that Welplan Pensions does not offer. Mixing your options can be complicated. If you re interested in this you might want to talk to a financial adviser first to check what s currently available. Pension providers are developing new retirement income products all the time, some of which might mix these options. Advice and guidance Comparing retirement income products can be complicated. You may wish to speak to a financial adviser to help you. They ll look at your circumstances and recommend what you can do with the money in your pension pot. Please note that Welplan Pensions is not authorised to provide financial advice. You can read more about choosing a financial adviser on the Money Advice Service website. https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser You can check your adviser is authorised by the Financial Conduct Authority (FCA) before you pay for advice. You can check the FCA register to make sure. http://www.fsa.gov.uk/register/home.do To receive free, impartial guidance from the government, go to www.pensionwise.gov.uk Tel: 030 0330 1001 Pension Wise is a new government service that will offer you: tailored guidance (online, over the telephone or face to face) to explain what options you have and help you think about how to make the best use of your pension savings; information about the tax implications of different options and other important things you should think about; and tips tips on getting the best deal, including how to shop around. Choosing what to do with your pension savings is an important financial decision; you can often get more for your money by shopping around. If you wish to discuss any of this information, you may of course contact Welplan Pensions by email or via the Freephone Helpline: Email: pensions@welplan.co.uk Freephone: 0800 195 8080 Version 08062016
Old Mansion House Eamont Bridge Penrith Cumbria CA10 2BX Telephone: 0800 195 8080 Email: contact@welplan.co.uk www.welplan.co.uk Welplan Pensions meets the ICAEW Master Trust Assurance standard.