Pension reforms finally came into effect on 6 April, but what do these changes look like, and what will this mean for pension holders going forward?
The reforms touched upon a number of areas, the most significant of which we’ve summarised below. For a personalised take on how the pension reforms affect your retirement future, speak with a qualified accountant.
Complete Access to Pension Pots
The main changes coming out of the pension reforms were first announced over twelve months ago at Budget 2014, with many of them focusing on giving pension holders greater freedom over their pension pots in terms of how they save, spend, or invest their pension going forward.
This was epitomised in the Government giving pension holders complete access to their entire pension pot from age fifty-five (with pension holders over fifty-five receiving immediate access on 6 April), without needing to buy an annuity. The new laws brought in with the pensions reforms allow pension holders to make withdrawals from their pension pot whenever they wish, with 25 percent of their withdrawal being tax-free on each occasion. Prior to these reforms, pension holders could only make one withdrawal with the 25 percent tax-free benefit.
Pension Pot Inheritance Tax Scrapped
On 6 April the so-called 55 percent ‘death tax’ on pension pots being handed down to loved one’s when the owner passes away was scrapped, with benefitting loved one’s now only having to pay tax on the pot at their income tax level.
In the unfortunate case that the owner of a pension pot dies before the age of seventy-five, the individual(s) inheriting their pension won’t be required to pay tax upon receiving the pension pot.
Great Investment Opportunities
There have been arguments on both sides of the political divide surrounding whether allowing pension holders greater freedom over their pension pot is a wise decision in the long run.
There’s certainly something to think about on both sides of the argument, with some financial analysts suggesting that many pension holders looking to immediately take out a portion of their pension upon turning fifty-five may not be aware that in doing so they may push themselves into a higher tax bracket. For the most part, however, being given greater freedom over how (and when) you can save, invest, and withdraw your pension will provide many pension holders and their accountants with a lot to think about with regard to how to maximise their future returns.
For this very reason, Chancellor of the Exchequer George Osborne made it clear ahead of the pension reforms coming into effect on 6 April that pension holders should take their financial future into their own hands; seeking out advice where appropriate to ensure all financial decisions are well thought through ahead of their implementation.
To speak with a professional to discuss what the pension reforms mean for your financial future, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.