With over 20 years’ experience in the financial sector, now working with Manning and Company Independent Financial Advisers in a prestigious part of the United Kingdom, Mike LeGassick has advised companies and individuals with varying income from all walks of life, on how best to structure retirement planning and their finances for both themselves and their families for when they are gone. Read what Mike’s clients have to say about his service here.
Millions of people in the UK have invested over the years into their “pension pots” by putting aside money from their monthly income which one day would support them in their later years. With much uncertainty in the marketplace recently, there is of course concern in many people’s minds about their pension investment and their options. We have to place our trust in the pension providers, however, sometimes it helps to have independent advice to ensure that you are receiving the best possible guidance at all times because peoples circumstances change throughout their lives and what was the right decision when we started to plan for our future may not be the case today.
This article will dispel some of the myths regarding pensions. If managed and monitored correctly and on a regular basis they can provide stability and a future for your golden years. That said, I find now more than ever that people are not only looking to secure themselves, but also to provide for their partner and children in leaving a legacy.
It may have escaped your attention, but there have been some huge legislative changes recently in the pensions world. Did you know that you can now:
- Access your pensions in part or in whole from age 55? This could be used for that “once in a lifetime holiday”, or to help your children take their first step onto the property ladder.
- Use pensions to help protect against Inheritance Tax.
- Pass on all of your pension to anyone completely free of tax if you die prematurely.
- Not have to do everything at once so you could release up to 25% tax free cash from your personal pension and defer taking income to later if you wish.
- Request a cash equivalent transfer value from your final salary pension scheme provider to see what the cash value of your accrued benefits to date would be worth in a personal pension in order to take advantage of all of the above.
I recently advised one of my clients who wanted to draw down some of his funds from his pension.
My client had a personal pension pot worth £426,000 and he was aged 60. He had a mortgage with £81,000 outstanding which was costing him £846 per month with 10 years remaining. He wanted to retire early because he wanted to travel, however, his mortgage commitment was getting in the way. I explained to him that he could withdraw 25% of his personal pension which was £106,500. He could then repay his entire mortgage immediately and free up the £846 per month payment and be left with £25,500 in cash to spend as he wished.
This resulted in him saving £20,150 in mortgage interest payments that he would otherwise have paid over the remaining term of his mortgage. This left him with a residual pension pot of £319,500. He then started to draw 5% from his pension per annum which was £15,975. No longer having a mortgage payment to make, this saved him £846 per month or £10,152 per annum.
Taking this action enabled my client to realise his dream of retiring early, paying off his mortgage and travelling. He now owns his property outright worth £525,000 and is now considering equity release as he wishes to release funds to travel in style in his retirement and “live the dream” as he puts it.
So how do you know if you are able to draw down funds on your pension? Well the simple answer is that there is no “one size fits all” solution. As with all of my clients we always make sure we review all elements of their pension, investments and aspirations before making a decision; that said, if you have a pension then the new pension freedom rules make it clear that pension holders now have unrestricted access and control of their pensions and no longer have to buy a traditional annuity.
People in ‘unfunded’ state final salary pension schemes – like NHS workers, teachers and the armed forces, whose retirement is paid for out of general taxation are barred from transferring their schemes. This is because approving transfers of these types of schemes on an ongoing basis could become a major burden on taxpayers.
If you have a pension and are considering your options of how to draw down cash safely and tax efficiently whilst retaining you and your family’s long term security, but are unsure on how to achieve this, then I would be happy to speak with you to discuss your options in full so you are able to make a fully informed choice.
If you would like a confidential and no obligation conversation then please complete the enquiry form below, I will be in touch upon receipt and look forward to helping you with your pension choices.
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Great care should always be taken if you are thinking about transferring pensions particularly from a final salary scheme as they provide valuable guarantees.
Tax changes on inheriting pension pots mean some people now want to get their money out of final salary schemes in order to bequeath it to children as opposed to the pension dying with them.
This is because a 55 per cent tax rate that applied to ‘defined contribution’ pension pots invested in income drawdown schemes will be scrapped in April 2016. Instead, beneficiaries will either pay no tax if the owner dies before age 75, or their normal income tax rate if they are 75 or over. The remaining pension pot can continually be passed down until there is nothing left thus ensuring that the wealth stays under your roof.
Personal pension investments can go down as well as up and past performance is not a guide to future investment returns.
Always seek independent financial advice whenever possible and be sure to monitor your investments on a regular basis and inform your adviser of any changes in your personal circumstances.