Pension Changes

Investment and Pension specialist, Martyn Charlwood explains the significance of the latest changes to pensions and why they now represent an even more attractive investment vehicle.

Pensions have for some time been one of the most tax-efficient ways to save for retirement but the latest changes to pension rules effective from April 2015 now also firmly position flexible pensions as the estate planning vehicle of choice. If you were ever in doubt as to the benefits of pensions here are a few key reasons to re-consider:

Tax breaks – Pensions provide the highly attractive addition of tax relief on the contributions made. As an example, for a Higher Rate tax payer who contributes £10,000 into a pension, the net contribution would equate to only £6,000.00 on account of the £4,000.00 tax relief applied – that’s an additional boost of almost 67% of the net contribution – even higher than this for an Additional Rate taxpayer. Add this to tax free investment returns and the ability to withdraw a proportion of a pension pot as tax free cash and the benefits of pension investment become exciting!

Flexible and Accessible – From April 2015 private pensions will become far easier to access. Investors will be able to take their entire pension pot as a lump sum if required from as early as age 55. The first 25% can be taken as tax-free cash with the balance being subject to income tax at their highest rate. There is also the option to take pension benefits in stages, rather than in one go using Income Drawdown which could greatly assist in managing the income tax position.

Inheritance Tax friendly – The 55% tax charge applying to pensions pots left to children will be scrapped in April 2015 which will mean pensions will become  a very attractive wealth transfer wrapper. If the pension owner dies before age 75 the beneficiaries will no longer have to pay any tax on the money they receive. If the pension owner dies after age 75 the monies received by the beneficiaries will be added to their income and taxed accordingly.

Consider paying more into pensions – it’s never too early to contribute but there is not much time left to maximise contributions up to the £40,000 annual allowance for this tax year and carry forward unused allowances from earlier tax years.

3 necessities,  essential to the success of your pension  arrangements:

1. Are the underlying monies held within your pensions being managed to maximise and obtain the best returns?
2. Some pension providers will not permit the new rules and therefore it may be necessary to consider transferring to an alternative provider
3. Ensure your providers charges are competitive – most important – ensure you are happy you are getting value for money

“Are your investments and pensions working for you?…     Allow us to propose an alternative”