PUBLISHED: 05:57 06 April 2015
There is good news on pensions, says the team at Lovewell Blake chartered accountants in Norwich.
The government is still giving a boost to your pension by providing tax relief on what you save. You pay in £80 and the government adds another £20 if you are a basic rate tax payer.
Tax relief is granted up to your highest rate, with higher and additional rate tax reclaimed via an annual tax return. The tax relief can give your pension savings a head start over your other investments.
From 6 April, if you are aged 55 or over, new rules will allow you greater access to your pension savings. You can take a quarter of the value tax-free with the remaining three-quarters as you wish, either as income or as a lump sum. However, the remaining three-quarters will be subject to Income Tax and you need to plan how much and when to take it without incurring a higher tax band charge.
Also, what money will be left to provide further income in your retirement?
You can still buy an annuity, handing over your pension fund for a guaranteed income for life, or you can invest in a draw-down plan, the pension fund remaining actively invested with flexible income.
You do not have to retire from work to start taking your pension benefits either.
If you are over 55 before 6 April and plan to take any of your benefits while keeping the option to pay more money into a pension, then be aware that your annual allowance will reduce to £10,000 if you take benefits in excess of current limits.
The annual allowance is the amount of pension contribution entitled to tax relief. By starting a “capped” draw-down plan before 6 April you may be able to keep the higher £40,000 annual allowance.
If you die before age 75 with money still held in your pension fund, the new rules allow money to be taken by any named beneficiary as either a tax-free lump sum or as an income. On death after age 75 the pension fund may be paid to your beneficiaries but with lower tax charges than now. The pension pot may now be passed down to future generations.
So, the good news is greater flexibility when taking your pension fund and tax-free cash or income for your beneficiaries. You now have greater control, but as always, think before you act and always take independent financial advice.
Disclaimer: Please note that this article is provided for your information only. While every effort has been made to ensure its accuracy, information contained herein may not be comprehensive and you should not act upon it without seeking professional advice.