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How the April 2015 pension changes may affect you

There is a radical overhaul of the pension system in the UK that is set to take effect next month, April 2015. There have been several aspects to George Osborne’s plans announced in the past year, and this article will outline some of the thing you should all know.

 

The investment charges that workers pay when they save into a pension are being examined for the first time and companies are under pressure to lower them. At the same time, more workers will save into a pension as the roll-out of the Government’s auto-enrolment scheme stretches to more companies. Changes to the taxing of pensions will also mean beneficiaries can get a larger chunk of a loved one’s pension after they pass away, as well as being able to discover how much they are due to receive with a new ‘flat-rate’ pension that launches in 2016. It will be interesting to see whether these changes will affect young fintech companies like Nutmeg who are revamping how people approach the concept of a pension with their online personal pension service that was just launched earlier in 2015 and is already enjoying momentum.

 

It goes without saying that these changes are extremely important and will affect a lot of people, and for this reason the Chancellor has promised that anybody affected will be offered free guidance on the changes to the system. People understandably will want to know the ins and outs before making big-money decisions and hopefully these sessions will go some way towards lessening the amount of mistakes made because of a lack of knowledge. Bear in mind, however, that these sessions will offer general guidance on the subject, and not personal guidance. A leading voice in the reforms stated, ‘The Chancellor has promised every retiring pension investor will have access to free, impartial retirement advice. It will be provided by The Pensions Advisory Service over the phone and online and the Citizens Advice Bureau face to face. TPAS is working flat out to prepare for this responsibility; however the service is likely to be limited both in its scope and in the take up from the public’.
The aspect of the reform that will affect us most noticeably is probably the tax changes:

  • Savers can pass on what’s left of their pension pots to loved ones without being taxed after death, as opposed to the 55% tax that currently stands
  • Husbands and wives whose partners pass away before the age of 75 will get income from their spouse’s pension tax-free.
  • Over 55s who want to take advantage of the changes should look out for big tax bills.

 

An example of a recommended strategy is as follows; if you have a £200,000 pot, you could cash it in from April 2015 and have £50,000 tax-free, but the remaining £150,000 would be liable for tax. However, if you have £40,000 in pension savings and withdraw £10,000 a year for four years the pension will be tax free given the personal allowance of £10,000.

 

 

 

 

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