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Exciting new rules giving you greater flexibility over what you can do with your pension benefits were introduced on 6th April 2015. These changes include:
If you are considering taking your pension benefits we recommend you seek professional financial advice specific to your circumstances or access free impartial guidance through the Pension Wise service.
Once you reach the age of 55 you will have total freedom as to how you wish to take income from your pension fund. There is no longer any need to buy an annuity or have pension income capped at government imposed limits. You can choose to take:
The first 25% of your fund will be tax free. The rest will be subject to income tax at your marginal rate (either 20%, 40% or 45% depending on the overall amount of income in any one tax year). If you take a lump sum income payment this may put you into the next tax bracket, meaning you pay a higher rate of tax. If you wish to withdraw large amounts from your fund, it will normally be beneficial to spread payments over a number of years to mitigate the amount of income tax payable.
To find out more about the options available to you we suggest you seek financial advice or guidance from Pension Wise.
New limits have been introduced to the amount you can contribute to your pension once you have accessed the new pension’s flexibilities.
The annual allowance is the amount you can contribute to all of your pensions in a pension input period (usually the tax year). This amount is currently £40,000 per year if you have not accessed your benefits.
If you go over the annual allowance you can use your annual allowance from the previous three tax years if you have some of your allowance left over.
Once you have accessed your taxable pension benefits you will still be able to make pension contributions but these will be restricted to £4,000 per annum (this reduced from the previous £10,000 per annum limit on 6 April 2017) and you will not be able to use any of your unused annual allowance from previous years.
There is an exception to this rule. The limit does not apply if you were already in capped drawdown before 6th April 2015 and stay within your designated drawdown (GAD) limits. This will allow you to continue to pay a contribution up to £40,000 p.a.
If you are planning on making large pension contributions and intending to take any income from your fund, it is important that you speak to your financial adviser.
To help you understand your options when accessing retirement benefits from your pension fund you will be offered free guidance to help you understand all of your options. The guidance is offered by the Citizens Advice Bureau and the Pensions Advisory Service and will come under the name of Pension Wise. You can access the guidance online, over the telephone, or face to face at no cost. For more information visit www.pensionwise.gov.uk or call 030 0330 1001.
Utilising the Pension Wise service or taking regulated financial advice is a key part of protecting yourself and your family when making an important and irreversible decision about taking pension benefits.
For bespoke advice particular to your own circumstances, it is recommended that you speak to your financial adviser.
Before 5th April 2015, if you were taking pension benefits, or were over age 75, any lump sum paid to your dependants would be taxed at 55%. From 6th April 2015 this element of the pension death benefit rules was abolished.
If you are under age 75 you are now able to leave your pension fund to anybody completely tax free regardless of any benefits that have already been taken. Your beneficiary will be able to take the pension fund as a lump sum or draw the fund as an income. Both options are tax free.
If you are over age 75 your beneficiary will be taxed at their marginal rate of income tax whether the funds are taken as income or as a lump sum.
For more information about death benefits please visit our Pension Death Benefits page
If you are already drawing pension income from your scheme you are either in ‘capped drawdown’ or ‘flexible drawdown’.
If the amount of income you are able to take from your pension each year is restricted you are taking ‘capped drawdown’. You have a maximum level of income you are able to take from your fund each year and this is reviewed every three years up to age 75, and annually thereafter.
From 6th April 2015 members in capped drawdown can either:
Flexi-access drawdown allows you to take as much of your pension income as you like but this will be subject to tax at your marginal rate (either 20%, 40% or 45% at current tax rates depending on the overall amount of income in any one tax year). This may not be tax efficient for you to do so we recommend you seek professional financial or tax advice if you wish to draw large amounts from your fund.
If you choose to move from capped drawdown to flexi-access drawdown the amount you can contribute to your pension each year will reduce to £4,000 (this reduced from the previous £10,000 per annum limit on 6 April 2017).
If the amount of income you are able to take from your pension each year, before 5th April 2015, was not restricted you were taking ‘flexible drawdown’. From 6th April 2015 you’ll have automatically moved to ‘flexi-access drawdown’.
This will have no impact on the way you choose to take your benefits, but you will now be able to pay tax relievable pension contributions up to £10,000p.a..
This information reflects the regulatory and taxation situation as it affects pensions at the time of publication in April 2017 and is provided to the best of our knowledge. It is not a complete representation of the pensions legislator landscape and is for guidance and information purposes only. We cannot be held responsible for any errors, omissions or subsequent legislative changes.
For further information on your pension scheme administered by Morgan Lloyd, or any enquiry, please do not hesitate to call and one of our team members will be happy to helpView more