The big changes
From 6th April, new rules are being introduced to pensions which will give you greater flexibility and control over how you spend your pot when you retire. They may even allow your family to inherit it free of tax.
Thanks to these changes, family members play an even more important part in planning your family’s finances. So, whether you’ve already retired, are planning your retirement, or are just starting to save seriously, there are a number of ways to help build your family’s long-term wealth.
Planning your future
Pension freedom is a great opportunity to boost your retirement savings, if you start planning for it now. The biggest change from April is that anyone aged over 55 can take their entire pension as cash, if they wish. This applies to both personal pensions and the most common type of company pension schemes, known as money-purchase or defined contribution schemes. However, it does not apply to defined benefit final salary schemes, although you could take advantage by transferring the money into a defined contribution scheme, but this is a complex route.
Carry on growing
You may not want to cash in your full pension the moment you retire or even before, because you could end up with a large tax bill if you do. Although you can take a tax free lump sum of up to 25% from your pension, the remainder will be added to any other income for that year, and charged as income tax.
So, if you withdraw a large sum you could end up paying 40% or 45% tax on it. Income drawdown may be a better option, as you can leave your pension invested to grow, while drawing from it to boost any other retirement income. You will still pay tax on withdrawals, but phase the amounts by keeping your annual income below the 40% tax threshold.
The rules will not be as straightforward as they first seem, so it is best to seek advice from us before making any decision.