The landscape of pension savings has changed dramatically over the past 12 months. Budget announcements have continued to ensure that pensions are no longer the rigid and poorly valued instruments that they were once labelled. The days of having to purchase a small income per annum for the rest of your life seem to be long gone.
Individuals, particularly those reaching or currently over age 55, can see the vast array of benefits attached to investing within pension plans. In an interesting twist we now hear people discussing pensions without the cynicism of previous years, but with genuine interest and intrigue, notably referring to the following potential benefits:
- Potential tax relief on contributions (within limits)
- Potential 25% tax free cash from pension benefits
- The flexibility, from April 2015, to access pension benefits how and when you see fit (upon reaching age 55)
- The fact that pension funds will not liable to Inheritance Tax and may be passed on to any selected beneficiary
- The ‘death taxes’ previously applying are to be eased from April 2015
There are, however, a number of issues to be considered by individuals when considering their pension position:
- Have you considered utilising the Carry Forward rules to maximise your potential pension contribution?
- Accessing pension funds by utilising the new pension freedoms post-April 2015 could lead to you significantly reducing your Annual Allowance
- Are the death benefit nominations selected for your pension funds still tax efficient, bearing in mind the new death benefit rules
- Where would it be most tax efficient for you to take income to fund your retirement – with an array of assets and potential income sources, pension assets may not be the most appropriate option
- Will you exhaust your pension funds earlier than expected if you decide to take the level of income that you want to take?
- Can your existing plan(s) facilitate these new feature
It is clear that pensions now have their swagger back thanks to the recent changes. Rather than the free-for-all that many expected in terms of people clearing out their pension piggy banks, pension funds have instead have the potential to become a far more significant part of an individual’s financial plan than ever before. Careful planning is required to take full advantage of these rules, whether this is by making large tax-relievable contributions or utilising your pension funds as an inter-generational tax planning vehicle.
With all of these factors in mind, have you analysed the effects that the new pension rules may have on your position?
