New pension rules: don’t forget about tax

by Paul Northmore, Managing Director

The new pension rules announced last year come into effect on 6th April 2015 – “Freedom Day”.  

From that date, if you are 55 or over you can withdraw your entire ‘defined contribution’ pension pot as a cash lump sum if you wish.  (‘Defined contribution’ means how much you receive depends on what you’ve paid in.) 

Many are tempted by the new freedom.  A recent survey by The Pension Advisory Service and TD Direct Investing indicated that 24% were planning to take at least half of their pension pot as cash. 

But there are some important tax considerations.

The new tax rules for pensions

75% of each lump sum you withdraw is subject to tax – and your pension pot withdrawals are classed as ‘income’ and taxed by the same rules.  This means:

Budget 2014

In honour of the new twelve-sided pound coin announced on Budget Day, here are our twelve top headlines from the Budget 2014.

First, for individuals:

1.  ISAs are becoming simpler, and the annual tax-free limit is rising to £15,000 in July.  Savers will be allowed to save the maximum amount in cash, instead of splitting their money between cash and stocks and shares – sure to be a popular move. If you don’t already have an ISA, this is the perfect opportunity.  Talk to us for advice.

2.  Junior ISAs will see an increase in the annual tax-free limit to £4,000 per year. A good way to get the younger ones in your family engaged with saving!

3.  A new pensioner bond from National Savings & Investments will allow those aged 65 and over to save up to £10,000 at better interest rates than currently available on the market – a figure of 4.0% for a three-year bond has been indicated.  If you’re eligible and have the wherewithal to save, take advantage of this.

Autumn Statement 2013

by Paul Northmore, Managing Director

While George Osborne tells us “The plan is working,” the fact facing many of us is that we ourselves will be working longer than expected before we receive a state pension.

The headline implications of this year’s Autumn Statement are that those now in their 40s will need to work until 68 to get the state pension, and those currently in their 30s will have to wait until age 69. And who knows if the pension age will rise yet further in years to come?

It’s an inevitable outcome for an aging population the country can’t afford to fund.  And it’s compounded by the fact that those starting work today typically do so at about 21, six years later than the typical age when the pension model was first established – so the system is losing out on a lot of NI contributions.

Autumn Statement 2012

On 5th December 2012 the Chancellor of the Exchequer gave his Autumn Statement on the economy to the House of Commons.  Here is a summary of the key points.

If you're concerned about how any aspect could affect you and your finances, get in touch with Manning and Company and speak to one of our independent financial advisers. We'll be happy to give you informed financial advice, tailored to your situation.