Wednesday, 18 March 2015

Pensions are changing! Are you ready for April 6th 2015?

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Flexible Access 

From April 2015 if you are aged 55 or over you will have total freedom over how you take an income or a lump sum from your pension. You can take the whole pension as cash with the first 25% tax-free, take smaller lump sums as you wish with 25% of each withdrawal tax free and the rest taxed as income, or take up to 25% tax-free and a regular taxable income from the rest.

Annual Allowances

Pension contributions are currently subject to a £40,000 annual allowance and specific contribution rules. However, if after April 2015 you make withdrawals from a defined contribution pension in addition to tax-free cash, contributions to defined contribution plans could be restricted to £10,000.

Individuals in existing capped drawdown from 6th April 2015
The £40,000 annual allowance is retained as long as the individual is in an existing 'capped' drawdown scheme on 6 April. They also keep the ability to carry forward unused contributions from the previous 3 tax years. The maximum carry forward limit is £180,000 in the 2015/2016 tax year.

Individuals going into drawdown after 6th April 2015
A £10,000 annual allowance for money purchase pension savings will apply to individuals who have accessed their pension savings flexibly from an Uncrystallised Fund Pension Lump Sum (UFPLS), a flexi-access drawdown fund or a flexible annuity. The £10,000 annual allowance will also apply to payments of a scheme pensions set up on or after 6 April 2015 from a scheme with less than 12 pensioner members. However, such individuals will retain an annual allowance for defined benefits pension savings of up to £40,000, depending on the value of new money purchase pension savings. The £10,000 annual allowance will not apply to an individual by virtue of their receiving a small pot lump sum. Unused annual allowance brought forward from earlier tax years will not be available to increase the £10,000 annual allowance for money purchase pension savings.

Death Tax

Currently, it is normally only possible to pass a pension on as a tax-free lump sum if you die before age 75 and you have not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund is subject to a 55% tax charge. From April 2015 this tax charge will be abolished. The tax treatment of any defined contribution pension you pass on, which you do not use to purchase a lifetime annuity or scheme pension, will depend on whether you die before or after age 75.

If you die before age 75
Your beneficiaries can take the whole pension as a tax-free lump sum or take an income from it.

If you die after age 75
Your beneficiaries can either: take the whole pension as cash subject to 45% tax, take a regular income subject to tax at the beneficiaries marginal rate, or take smaller lump sums through income drawdown which will be treated as income and taxed at the beneficiaries marginal rate.

Death after buying an Annuity

If you buy an annuity, you can choose for the income to be paid to your spouse or partner after you die (a joint life annuity). You can also choose a guarantee period or value protection to ensure that should you die before the term ends it will continue to pay out to your spouse, partner or beneficiaries. Currently, these payments are subject to tax. In the Autumn Statement of 2014 the Chancellor announced they will be tax free if you die before age 75 and the annuity you have is a lifetime annuity (if you have a scheme pension, any guarantee period payments will be tax free but joint life or value protection payments will continue to be taxed.

Access to free impartial guidance

Everyone should have access to free impartial guidance to help them make sense of their options at retirement. This service will be provided by Citizens Advice Bureau and the Pensions Advisory Service and the Pension Wise website can be accessed at There will be no charge and your pension provider will be required to tell you about the impartial guidance.

Ability to transfer a defined benefit pension

Most people with a defined benefit, also known as a final salary, pension will also be able to take advantage of the new rules and make unlimited withdrawals. To do so, they will have to transfer to a defined contribution pension. But as you could lose very valuable benefits, you should seek appropriate independent advice first.

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Monday, 16 March 2015

Cash ISAs vs Stocks & Shares ISAs

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Do you have or are thinking about an ISA? The type of ISA, whether Cash or Stocks & Shares, that is right for you will largely depend on how long you want to invest for and how much risk you are willing to take.

Cash ISAs

  • Good if you want to invest for less than five years, or where you don't want to take any investment risk*.
  • Interest will be added to your Cash ISA every year or more frequently.
  • Normally allow instant access to your investment, but if you do have a fixed term account you may lose interest if you make a withdrawal before the term is up.
  • No investment choice. You receive interest on your savings at a fixed or variable rate.
  • You can invest up to £15,000 in the 2014/15 tax year and you can split this between a Cash ISA and Stocks & Shares ISA as you wish. 

Stocks & Shares ISAs

  • Good for investing for five years or more, and when you want to share in the potential growth in stockmarkets.
  • The value of your ISA can fall as well as rise depending on the performance of your investments.
  • You are able to make withdrawals from your ISA and this is usually within 8 to 10 days.
  • You can choose from a wide range of investments including funds, trusts, bonds and individual shares to be held within your ISA.
  • You can invest up to £15,000 in the 2014/15 tax year and you can split this between a Cash ISA and Stocks & Shares ISA as you wish. 

If you have any queries regarding your investments our Independent Financial Advisers are always happy to answer your questions, we offer 'no obligation' initial meetings and can help you find the perfect fit for your situation.

* If the inflation rate is higher than the interest rate you receive then even though you will see an increase in the value of your investment, it will be eroded in real terms.

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