Pesion Rules

[francovendee]

I'm now able to avoid buying an annuity, thanks to changes that came into effect this month.
I wonder if anyone can clear up a confusion I have regarding the 25% tax free withdrawal. Is this available more than once i.e. if You take 25% this tax year can you repeat it again next year or would it then attract tax?
I was under the impression that you only get the tax advantage once but a friend insists it's it is available the following year(s).

[simonineaston]

Don't rely on us, but instead take advantage of the (last) government's provision that we all have a right to free impartial advice.
http://www.pensionsadvisoryservice.org.uk/about-us

[al_yrpal]

I am interested in the answer to this because next year I want to cash in my current annuities which are still paying useless so called financial advisors a commission. I can manage my own pension.

Al

[thirdcrank]

AFAIK, the tax rules are not changing. Pension rules are being changed so that the requirement to invest pension savings in a qualifying annuity no longer applies. The general rule on tax free sums is that up to 25% of a so-called pension pot can be taken as a tax free lump sum. The other chatter about tax at the moment is because if somebody withdraws all or part of their pension - beyond that tax-free sum - it can take them into the higher rate tax band for the year they make that withdrawal. People are free to withdraw the lot, but may have to stagger it if they want to avoid higher rate tax. If somebody is already paying higher rate tax, that would be impossible, and if they are just below the threshold, then however they take the pension it's likely to take them over.

Beyond this, the insurance companies who operate the pension business aren't going to take this lying down and I think we will see some penalties being imposed.

[gaz]

The bit that I believe has the OP's friend confused can be found here: https://www.pensionwise.gov.uk/pension-pot-options

Take your money flexibly

There are currently 2 ways you can get a flexible income from your pension pot. The main differences are how you can take the tax-free part and what sort of income you want.

Option 1: take flexible lump sums of cash - your pot stays where it is and every time you take out cash, 25% of the amount is tax free and 75% is taxable
Option 2: get a flexible income - you can take 25% of your whole pension pot as a single, tax-free cash sum - the rest is invested to give you a taxable income

Taking larger sums from your pension pot can mean you pay more tax.

Not every provider is providing flexible income options. Don't be surprised to find that HMRC rules mean any taxable withdrawal is taxed at an emergency rate. You'll need to claim back any overpaid tax from HMRC. More here: http://www.thisismoney.co.uk/money/pens ... y-tax.html

Please note that gaz is not FCA regulated and cannot assess individual retirement needs. You will not receive advice or recommendations from gaz about them. Other providers and policies may be available. Beware of Scams. May contain track nuts.

[pete75]

25% of your total pension pot can be drawn tax free - a one off allowance not an annual one. I'm not a great believer in these pension pot arrangements so have stuck with a final salary scheme for the past 30 odd years.

[francovendee]

25% of your total pension pot can be drawn tax free - a one off allowance not an annual one. I'm not a great believer in these pension pot arrangements so have stuck with a final salary scheme for the past 30 odd years.

I've taken a look at the government site and it confirms what you say and what I believed to be the case.
Regarding final salary schemes, they are becoming increasingly rare due to cost to the company. I was lucky in having one of these for a good part of my working life but for 3 years I worked in a company that didn't run that sort of scheme.
The pension pot isn't large, under £30000 so absolutely pointless in using it for an annuity at present rates.
I think I'll take the whole amount out and pay tax on it, after all I had a tax allowance against my contributions so shouldn't complain.

[thirdcrank]

In the longer term, I think the attention being paid to so called "pension pots" on which the lifetime allowance is being reduced, will focus attention on final salary pensions, especially in the public sector. With current interest rates, even the recently reduced max of £1M doesn't buy a huge pension. I saw something the other day which I can't find now which suggested that the pension would be £27,000 pa. OK, that's huge compared with what many people get, but it's only 2/3 of a final salary of around £40K. Historically, public sector pensions have been unfunded, with politicians of any given period taking on commitments without considering how they would eventually be met. In times of pay restraint in the public sector, enhanced pension rights have often been offered as a sweetener. Eg When Merlyn Rees decided to delay implementation of his own Edmund Davies enquiry into police pay, he made pension entitlement reflect the recommended pay scales, rather than what was actually being paid. There are plenty of other examples.

[kwackers]

25% of your total pension pot can be drawn tax free - a one off allowance not an annual one. I'm not a great believer in these pension pot arrangements so have stuck with a final salary scheme for the past 30 odd years.

Personally I think there are better ways of investing money than buying annuities - particularly in the current climate.
In that respect I welcome our new pension overlords.

[Psamathe]

In the longer term, I think the attention being paid to so called "pension pots" on which the lifetime allowance is being reduced, will focus attention on final salary pensions, especially in the public sector. ... In times of pay restraint in the public sector, enhanced pension rights have often been offered as a sweetener.

Comment regarding Public Sector Pensions: My 2nd ever job was with a QUANGO at a pretty junior level (Scientific Officer then Higher Scientific Officer - low salary) and I then moved into the private sector and spent the rest of my career paying into private pension funds (with generous bonus payments each year for the last 15 years - as I owned part of the company).

And as of today, my 5 years under government employment is going to give me a far more valuable pension than all those subsequent years paying into private pension funds. I don't know of many who have both and can make good comparisons. (Note: I have a variety of different private pension funds as different companies used different pension companies and whilst some funds can perform badly, mine have all performed pretty much the same and as mainstream companies I cannot believe they are all a "disaster" in relation to others).

Ian

[al_yrpal]

I have a number of small annuities, the best one pays £120 a month. They are on my life only so if I snuff it before my wife its gone swallowed up by Prudential. I would like to have control of that pension cash myself and next year it looks like I will be able to if the Tories get in. If I can get the cash I can buy some more high yeilding shares, I already hold a lot some shares and get an annual income from them in the form of dividends of 4.6% tax free which is much better than any fund or paying parasite so called financial advisor fees. In addition I will be able to leave the shares to my wife and she can leave them to our kids. Its absolutely great that the government is doing this. Some idiots may go for the Lambos but it puts you in charge of your own hard earned cash. If I cash in a small annuity every year I can avoid swingeing tax charges.

Bring it on

Al

[The Mechanic]

I have a number of small annuities, the best one pays £120 a month. They are on my life only so if I snuff it before my wife its gone swallowed up by Prudential. I would like to have control of that pension cash myself and next year it looks like I will be able to if the Tories get in. If I can get the cash I can buy some more high yeilding shares, I already hold a lot some shares and get an annual income from them in the form of dividends of 4.6% tax free which is much better than any fund or paying parasite so called financial advisor fees. In addition I will be able to leave the shares to my wife and she can leave them to our kids. Its absolutely great that the government is doing this. Some idiots may go for the Lambos but it puts you in charge of your own hard earned cash. If I cash in a small annuity every year I can avoid swingeing tax charges.

Bring it on

Al

Interested to know how you get your dividends "tax free"

[al_yrpal]

Before dividends are paid by a company the company must pay 10% tax on what it intends to pay. My 4.6% is actually what I get, so tax has already been paid. Because I am not in the 40% tax bracket I dont have to pay any additional tax.. If I were on 40% I would have to pay a tax of 25% on any dividends received. Both I and my wife hold some shares. The key thing is to spread the risk by holding plenty of different shares because some will do well and some may tank. Since 2002 we have held shares in 17 different companies between us. We just bought them and held them we dont trade. The thing is that its the dividend income we are interested in not the capital. We held shares in RBS, Lloyds, BP, Tesco etc which have all tanked, but companies like Pearson, Tate and Lyle, Glaxo etc have more than compensated in terms of capital appreciation leaving us with some significant capital growth in the long term. There have been times when our investment has shown a big loss in capital terms but you have to just ignore this and think in income terms.
All fund managers do is what we are doing, but… they apply charges, as do all financial advisors which is your money down the drain IMO. These charges add up to very significant losses in the long term. Row your own financial boat!

Its all explained here… http://www.fool.co.uk/investing-basics/ ... portfolio/ As ever, do your own research…

Al

[wirral_cyclist]

You can tell that financial planners are blood suckers by the simple fact they take a guaranteed percentage of the fund and not out of the uncertain return....

[pete75]

I have a number of small annuities, the best one pays £120 a month. They are on my life only so if I snuff it before my wife its gone swallowed up by Prudential. I would like to have control of that pension cash myself and next year it looks like I will be able to if the Tories get in. If I can get the cash I can buy some more high yeilding shares, I already hold a lot some shares and get an annual income from them in the form of dividends of 4.6% tax free which is much better than any fund or paying parasite so called financial advisor fees. In addition I will be able to leave the shares to my wife and she can leave them to our kids. Its absolutely great that the government is doing this. Some idiots may go for the Lambos but it puts you in charge of your own hard earned cash. If I cash in a small annuity every year I can avoid swingeing tax charges.

Bring it on

Al

I have a small pension pot from a scheme I was in for a couple of years in my previous job 30 years ago. It was with a company called Scottish Mutual now gone. Have looked at various options and the successors to Scottish Mutual, Phoenix Life say they will pay a guaranteed annuity of 11%. I'm tempted to bung some more money in the fund to buy a bigger annuity.....