Planning for a well-earned retirement? What the new pension rules could mean for you - sponsored feature

    • 08:00, 28 Feb 2015
    • Sponsored Content

When George Osborne delivered the 2014 Budget, he radically changed the pension’s landscape for generations to come. As the new pension rules come into force from 6th April, Brewin Dolphin’s Head of Financial Planning, Jo Jackson, explains what these changes could mean for you

Jo Jackson of Brewin Dolphin
Jo Jackson of Brewin Dolphin

The new pension reforms announced last year have far-reaching consequences, changing the way we will all have to think about our retirement plans, from April onwards. However, recent research shows that over half of Britons are still confused about the new pension rules and many do not know who to turn to for sound advice to guide them through the maze of options.

One of the biggest changes on the pensions horizon is that they are about to get more flexible. This means that whether you plan to retire soon, are still far from retirement, or already retired when the new rules come into force, there will now be greater freedom and fewer restrictions on how people can take their money from their pension fund at retirement. But if you’re still relatively far away from retirement – perhaps in your 30s, or 40s, then what does this mean for you?

Arguably, the changes are more significant for those who have retirement on the horizon, than those who have already retired, as you have the time to plan a pension that works for you. However, life after work costs a lot more than most people think and according to a recent YouGov survey, almost three quarters of under-45s with pensions have no idea what their pension pot is worth, let alone what it could provide for them at retirement. With life expectancy also on the rise, our money has to work harder for longer, so if this sounds all too familiar, then it is crucial to seek professional advice to check that your pension is still fit for purpose and on track to provide you and your family with the standard of living you want in retirement.

But if you’re amongst those who expect to retire in 2015, or shortly after, then the new pension rules will carry greater significance and may indicate the need for urgent advice.

What to do next

Square One Law, Brewin Dolphin and Deloitte have joined forces to offer advice on personal finance from a wealth management, legal and tax perspective.

For general enquiries about financial planning, please call on 0191 230 7060. This number will take you through to the Brewin Dolphin team who will pass on your query to the relevant expert.

Alternatively, fill in the form at the bottom of this article to outline your enquiry. Our experts will respond to your enquiry within three working days by your preferred method of contact.

The key changes you may need to discuss with an advisor are outlined as follows:

1. Pension Freedom – Enjoying Greater Flexibility

From the 6th April 2015, there will be more flexibility and fewer restrictions on how people can take their money from their pension fund removing the requirement to turn the fund into income, including the purchase of an annuity.

Everyone over the age of 55 will now have the option to take any amount from a defined contribution scheme (subject to income tax payable at the highest marginal rate) as they see fit, giving them more control over their pension fund.

You will still have the choice of buying an annuity – but also the option of going into income drawdown or taking a lump sum and investing it as you choose. You can receive a tax free cash sum of up to 25 per cent of the pension fund and then have the freedom to access the remaining amount as income as and when you need it.

A number of sources have said this could spell the end for annuities. However, they do still have their place for people who require a guaranteed income for life, or for individuals with poor health, for example. The government has also pledged to remove some of the current restrictions around annuities to allow for the development of more flexible products.

2. Changes to how much you can put into your pension

If you're currently drawing down pension benefits using flexible drawdown, or you exceed the income limit for capped, you will receive an annual allowance of £10,000 which can be paid into a registered pension scheme and benefit from tax relief. If you continue to draw benefits from capped drawdown within the limits, you will retain the £40,000 per annum allowance. The annual allowance applies to the total pension contributions made to any pension scheme(s) that you hold during the tax year.

Your pension provider will be able to provide you with the details of your annual pension contributions amount made for that scheme. If you think that you are getting close to your annual allowance, or may have exceeded it, you may wish to consider taking advice from a financial planning specialist.

3. Passing on your pension to friends and family

One other significant change, which will come into force from April 2015, is the scrapping of the 55 per cent ‘death tax’ on pensions. In practical terms, this will mean that you can pass on your unused pension savings in a defined contribution scheme to a loved one on death, tax free, if you die before 75. If you die over the age of 75, this amount will be subject to the beneficiary’s marginal rate of tax, or at 45 per cent if the funds are taken as a lump sum. Retaining wealth in the pension fund and passing it down to future generations in this way is potentially a good tax-efficient estate planning solution. The new rules will also allow you to hand down your pension savings to anyone, at any age, meaning that even nominated friends can now be beneficiaries. However, the rules are complicated, so it is always best to take professional advice before taking action.

Chris Radburn/PA Wire

4. A tax-efficient form of savings

Perhaps now, more than ever, pensions provide a very tax-efficient form of savings with increased flexibility on how you access those funds when you decide to draw the benefits. If you are 55 or over, where else can you get tax relief on contributions, tax free investment returns and a 25 per cent lump sum out tax free? For a higher rate tax payer this means a £1,000 pension contribution will actually cost you £600 –a 66 per cent investment return! And only 75 per cent of the pension fund is subject to income tax when they start to take an income. By which point they could be paying a basic rate of income tax, or even no income tax at all.

5. Help is available to navigate the retirement planning maze

The promised Guidance Guarantee announced in the Budget will help most retirees to understand their options, but this is no substitute for holistic financial planning advice. Retirement is no longer just about your pension fund – you need to look across all of your assets to see how they can work for you in the most tax efficient way. The good news is that there is expert help at hand to guide you through the maze of options and finding specialist expertise needn’t come at great cost, or be a headache.

So, if you are confused about the latest pension changes or if any of these situations are important to you, then we can help. At Brewin Dolphin, our comprehensive wealth management service combines our skills and experience in both investments and financial planning, so that we can help develop a sound-strategy for managing your financial affairs and safe-guarding your long-term wealth, all under one roof.

What to do next

Square One Law, Brewin Dolphin and Deloitte have joined forces to offer advice on personal finance from a wealth management, legal and tax perspective.

For general enquiries about financial planning, please call on 0191 230 7060. This number will take you through to the Brewin Dolphin team who will pass on your query to the relevant expert.

Alternatively, fill in the form below to outline your enquiry. Our experts will respond to your enquiry within three working days by your preferred method of contact. If you can't see the form below - click here to open in a new window.

Any investment mentioned in this article is for illustrative purposes only and is not intended as investment advice. Any tax advantages mentioned are based on current legislation accurate at the date of print which is subject to change. The opinions expressed in this document are not the views held throughout Brewin Dolphin. No Director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents

Journalists

David Whetstone
Culture Editor
Graeme Whitfield
Business Editor
Mark Douglas
Newcastle United Editor
Stuart Rayner
Sports Writer