Did you know that since the 2015/2016 tax year anyone aged 55 or over can take their whole pension as a lump sum, with no tax payable on the first 25%, and the rest taxed as if it were a salary at the individual’s usual income tax rate?*
Even though the changes have been well publicised, many people are still confused by how this could affect them. Making the correct decision, at the correct time, is vital. Whether you want to splash out on a Lamborghini, or make sure you have a regular income for life, Clayton Holmes Naisbitt can help you understand the options available to you.
Do the changes apply to ALL types of pension?
Put succinctly, no. The main schemes affected by the changes are private pensions where the individual and/or employer saved up a fund for retirement. These are also known as “Defined Contribution” or “Money Purchase” pensions. The changes do NOT apply to the state pension.
Is it worth taking all the money out at 55?
Not necessarily. Careful consideration needs to be given to the pros and cons of accessing the entire fund. If you’re still working in your 50’s or early 60’s, it could be wise to leave the money in there to allow your pension to grow as much as possible before you retire.
On the other hand, being able to take 25% of the fund tax free at 55 could help fund a much dreamed of Worldwide Cruise, or be put towards a deposit on a house for a child or relative. Both are viable options depending on your own unique circumstances.
Does this mean there’s no point in buying an annuity?
While there is no doubt that these major changes have affected the popularity of annuities, it doesn’t automatically mean they have become a useless instrument – a good annuity at a decent rate offers valuable security in the form of an income for life. Of course, there are certain drawbacks to these schemes, so it’s imperative you talk to a Financial Consultant who can explain these further.
Obviously this post can only give limited information, so if you want to discuss your options in further detail please use the “Contact us” form on the website, or call us on 0113 3878240 for a no obligation appointment.
*Information correct at June 2016