2015 Pension Changes – What Do They Mean To You?
Pensions have been changing in recent years, and the change coming is April has been mentioned as radical and massive but the reality is it’s just an extension of what has been happening for the last ten years or more.
There are audio versions along with a PDF download at the bottom of the page.
Over here at MoneyTrainers I help ordinary people do great things with their finances.
Technology has made it easier to manage your own finances and with the availability of high quality information it’s now incredibly simple for individuals to take control and benefit from a far lower level of charges, better investment returns and the ability to decide. The facts are that most Independent Advisers and Investment experts get it wrong.
Or we would all be rich, right!
Just a few of the things that I teach have the power to fundamentally improve your financial position very quickly, and these few things are just not used by most financial professionals as they are deemed to be too simple or two basic. Examples of these are below.
- One thing you can invest in that is guaranteed to provide better investment returns than 70% of managed funds.
- One thing you can change to make sure you are protected in a falling investment market.
- Changing the way your cash deposits are structured can improve your returns by 8 x when compared with a building society/bank account.
- By timing your investments you could have had returns at least 6% higher in 2014 from one investment.
- Pensions – the difference between a low cost provider and the average provider could cost you 40% of your pension every ten years.
Even if you are using a financial adviser did you know that you could be paying them over half the value of your investments over a normal lifetime.
It’s the above things that most ‘super rich’ do – and if you want the same results as them you should simply do the same.
Despite twenty six years of financial services regulation the rogue providers, poor quality advisers, high charging plans and poor investment performance still continue to be wide spread. MoneyTrainers are doing our best to change that.
There are a large number of fraudsters offering to ‘bust your pension’ or ‘help you invest your pension in property’ around at the moment and nearly all of these are scams or plans are so expensive as to not really be of any benefit.
Pension rules have been around for years subsequently any gaps in the rules that may disadvantage the Inland Revenue have been closed I can assure you. If it looks or sounds to good to be true I can assure you that it is.
So whats in the important pensions update?
What’s Happening To Pensions In April 2015?
At the moment if you have a pension you can do several things with it at your chosen retirement date – from age 55.
- Take some tax free cash or not.
- Take some tax free cash and income or not.
- Purchase an annuity with the fund.
- Leave the fund invested but take an income.
- Do nothing and leave the fund as is – stop or continue contributions.
From April 2015..
You will be able to access all of your pension fund as cash but it will be taxable in part, and that needs to be carefully considered.
Is this a massive change? Well yes and no. For quite a while now you have been able to draw income from your pension fund instead of being forced to buy an annuity, and the industry is getting all excited about the changes but in reality most of the options have been around for a while.
The changes from April will allow you to draw tax free cash and then the remaining fund as a lump sum less income tax if you wish. Now this means that you will be able to draw on a pot of cash and be left with no pension.
This is not a problem provided you are aware of it.
If you have annual income up to £31,865 you are basic-rate taxpayers and pay tax at 20% (with £10,000 personal allowance, this means a maximum income of £41,865) If you have income over this limit you pay tax at 40% on income over £41,865. If you have income over £150,000 this is taxed at 45%.
If you decide to take cash from your pension under the new rules then the amount will be added to your earned income and will be taxed accordingly. You will have to do the sums to make sure you don’t end up with a higher rate income tax liability.
- Tax free cash of 25% of your pension fund is always tax free.
- The balance drawn from your pension either as income or as a lump sum is taxable.
The treasury has also provided some help with more tax efficiency by making changes to the rules relating to death benefits.
Broadly these mean that the death of a pension owner before age 75 can pass on pension benefits without the 55% tax liability that exists now. Noting that the new rules don’t change until April 2015.
The Cost Of All This Flexibility
As always you the consumer will be expected to pick up the bill for changes to your pension contracts.
Most financial advisers are charging at least 2% of the fund value for initial advice and then the provider takes their slice which could be at least 1.5% of the fund, and you could then face annual charges which will be either fixed or variable.
At the moment there are few have specific products available and on the market yet as it’s not April.
When they do arrive you can expect to find at least 3.5% of your fund go in initial charges, and at least 2% go in annual charges making some 5.5% of your pension fund going in the first year.
With a £100k pot that’s some £5500 going immediately if your adviser is charging 1% p.a to oversee your fund and the investment funds add on a .5% (at least) charge you can expect £1425 to be taken in the second year.
Pension flexibility has just cost you £6925 based on a £100k pot. No wonder the industry is getting excited.
Now you know why I teach people like you to take control of their pensions – there are at least 6925 reasons in the above scenario.
By taking charge of your own planning you could reduce annual and set up costs to below £400 dependent on the options selected.
Ongoing costs will also be less than .6% in total – that’s £600 instead of £1425.
7000 Or So Reasons To Take Personal Control.
It is very easy to take a cost of nearly seven grand and reduce that less than one if you like percentages that’s an 85.82% saving.
Now you may think you have do a lot of work to make those savings. Fact is you will take less than four hours of your time and around 30 minutes per month manage (maybe even less).
Oh and you will need some help from MoneyTrainers fixed at £20 per month or £400 as a one to one half day training.
Let me ask – 10 hours work for £6k?
Would you be prepared to spend 10 hours of your time to save £6k? With the help of MoneyTrainers and a little time you will be soon be able to make this kind of saving.
Pension flexibility is here and it provides you with some great options to make as much as you want of it. MoneyTrainers are here to teach you how to do it and what you need to do.
We have no products to sell or advisers to pay – MoneyTrainers teachers ordinary people how to extraordinary things with their finances.
PDF Download 2015 PensionChanges
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Death Benefit Taxation from .gov.uk
From next year, individuals with a drawdown arrangement or with uncrystallised pension funds will be able to nominate a beneficiary to pass their pension to if they die.
If the individual dies before they reach the age of 75, they will be able to give their remaining defined contribution pension to anyone as a lump sum completely tax free, if it is in a drawdown account or uncrystallised.
The person receiving the pension will pay no tax on the money they withdraw from that pension, whether it is taken as a single lump sum, or accessed through drawdown.
Anyone who dies with a drawdown arrangement or with uncrystallised pension funds at or over the age of 75 will also be able to nominate a beneficiary to pass their pension to.
The nominated beneficiary will be able to access the pension funds flexibly, at any age, and pay tax at their marginal rate of income tax.
There are no restrictions on how much of the pension fund the beneficiary can withdraw at any one time. There will also be an option to receive the pension as a lump sum payment, subject to a tax charge of 45%.
Government Brochure – Pension Changes
Annuity a fixed income for life or a shorter period of time.
With many modern annuities you can build in some flexibility so these should be discounted.
Often for people who have health problems or are overweight, are smokers or have a range of life shortening conditions an improved annuity rate is available. I have a dedicated section in my training for this area of financial planning. For some these have been proven to be a great investment, but are not for everyone.