Easy access to your entire pension fund from 55 years old means that there is no longer the psychological barrier of pension money being “locked away”.
Pensions provide some of the best tax breaks on savings
For a higher rate taxpayer, this means:
– A £1,000 pension fund at a net cost of £600.
– Tax free investment growth.
– 25% paid as a tax free lump sum with the balance 75% pension fund taxed when monies are drawn or potentially not taxed at all.
Business owners have opportunities to combine pension withdrawals and the carry forward of unused allowances to enhance tax reliefs.
Sensible planning will help clear mortgages early or help achieve retirement earlier than planned.
Choices to access money purchase pensions
People with personal pensions can take money from their personal pension fund instead of using the fund to buy an annuity. This will be known as:
– Flexi-Access Drawdown (FAD).
– Taking a single or series of lump sum payments from untouched pension funds.
– The option to purchase a lifetime annuity remains. Rules are being relaxed and future innovation is expected.
Some options will trigger a new, lower contribution limit from £40,000 to £10,000 per annum. Those who can act before 6 April 2015 can retain the higher £40,000 annual allowance for future pension contributions. Retaining this high annual allowance maximises the ability to draw a taxable income from your pension and reinvest this straight back into your pension. This exercise is tax neutral and you benefit from additional tax free cash on monies reinvested.
If you are caught in an outdated contract and unable to move without losing potentially higher tax free cash entitlement, there may be an opportunity if you act before 6 April 2015.