Take steps to make sure your pension lasts as long as you do
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Expert advice from chartered financial planner Julie Wilson
The most radical changes to pensions in almost 100 years were announced in the Chancellor’s 2014 Budget. Almost overnight, ‘vulnerable pensioners’ have become ‘empowered investors’ who will be allowed to access their entire pension fund and use it as they wish. Previously, restrictions applied to how much of your pension pot could be taken in exchange for the valuable tax relief you’d have enjoyed as you saved up. None of that nonsense in future; you can have the lot. Twenty five percent of it tax-free, as is the case now, and the balance taxed at your highest tax rate. Worryingly, research already shows a significant number of pensioners are intending to take out their entire pension fund and put it in the bank. Proof, if it were needed, that consumers are a bit befuddled by the tax consequences of doing so. Because investments within a pension fund grows virtually tax free. But if you take it all out, you’ll be taxed on everything above 25 per cent of the pot – and that tax could be as high as 45 per cent (depending on your other income). And then when you put it on the bank you’ll be taxed again.
The good news is that the Government is intending to provide impartial financial guidance by independent bodies to everyone approaching retirement. The bad news is that it looks like that guidance is going to be delivered by the Money Advice Service – the very same organisation about which Treasury Select Committee chair Andrew Tyrie, expressed ‘serious concerns’ and money savings expert Martin Lewis described as ‘an atrocious waste of millions of pounds of public funds’.
I’ll be uncovering more of the fine print of the new flexible pension regime next time and outlining some of the key issues you need to think about if you want to make sure your money lasts as long as you do.
Julie Wilson is a director of Pen-Life Associates, independent financial advisers in York, Sheffield and Leeds