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Pension Reform


Next year sees big changes to the way we draw our
pensions anyone over 55 should read this:

Basically, there are two types of pension savings, the
first is by way of schemes offered through your job and
guarantee you an income after retirement usually based
on a percentage of your final salary or your average
salary over your career or the other type, private
pensions or occupational pensions where you invest
money to build up your own pension pot. It is the
second of these options that the changes apply to.

At present you can draw 25% of the pot as a tax-free
lump sum and the balance has to be invested in an
annuity and a monthly pension is paid from the pot. The
advantage of this is you are guaranteed a fixed amount
for the rest of your life. However, if you died
payments could only be paid for a maximum of 10 years
to your spouse/family and then only if you opted for a
smaller payment from the start.

From April, everyone who has a private pension will be
able to take all or any part of their pension in cash
from the age of 55. The first 25% will be tax-free and
further cash withdrawals will be subject to tax @ 20%
for basic rate taxpayers and 40% for higher rate
taxpayers. That means you will be able to decide how
and when to use your pension pot. If you fear you may
fall into the higher rate you could span the payment
over two years i.e. take an amount on the 5th April and
a further amount on the 6th April. What you do need to
take into account is that there is enough left for your
old age. Also if you still like the idea of an annuity
the reforms give you an opportunity to take more or
less in the early years or the later years you do not
need to have a fixed amount for life.

The drawback to this is you need to be careful not to
see this as a spend spend and then have insufficient
funds for later in your life as we are all living

My advice to you all is to seek professional advice.
The government is also offering impartial advice
through the citizens Advice Bureau, however, whether
this is adequate we won’t know until the changes take
place next year.

You know I’m in association with AMAS, therefore should
you wish to seek advice please do not hesitate to
contact me.