Have you been unsure about taking out a pension?

The Government has announced some large changes to the pensions industry.  Those of you that follow my blog will remember the post on pensions posted last year, in it I explained that saving through an organised scheme may not be the best alternative.

This has been blown wide open

Pensions savings now have much more flexibility.  The immediate changes include:

  • A reduction in the minimum income level to £12,000 (down from £25,000) before you can access your pension pot in flexible drawdowns;
  • An increase in the drawdown limit to 150% of the Government Actuary’s Department figure (up from 120%);
  • An increase in the size of a single pension pot that can be taken as a lump sum from £2,000 to £10,000;
  • An increase from two to three in the number of small pension pots that can be taken as a lump sum; and
  • An increase in the overall size of pension savings that can be taken as trivial from £18,000 to £30,000.

These are temporary changes, in the meantime the Government is consulting on some permanent changes.

The Pros

If you have hesititated to tie your money into a pension scheme in the past with concerns that you would ultimately “lose” your pension pot as you would be forced to take an annuity; this will no longer apply.  You will have much more flexibility over when and how much to take.  You will, of course, still be able to take an annuity, however the pensions industry is already warning that rates may be lower, resulting in a lower monthly pension if the number of annuities purchased falls substantially (or if only the families with longevity buy annuities!)

The Cons

The main disadvantage to tax payers (and advantage to the Government) is the tax due on cashing out your pension pot.

The amount you can receive tax-free is still limited to 25% of the pension plan.  Although the punative 55% tax rate  will no longer apply the lump sums withdrawn will be subject to income tax at 20%, 40% or 45% depending on the level of your other income in the tax year.

We think 40% is still quite a lot to lose from your savings.

The best advice is to consult a financial adviser…

Under current regulations you will have to pay for the consultation but there will be no hidden fees so you should be sure you are getting the best advice for you.

Clearways Accountants are not qualifies IFA’s and therefore cannot give personal advice concerning savings and pensions, although we can outline the main pros and cons of different savings products.   Please conplete the contact form below if you would like a free consultation.