Personal Pensions – Mortgagesandfs

Pensions - Personal Pensions

You can make either monthly or lump sum contributions to a pension provider, who will send you an annual statement detailing the value of your fund. The amount you receive when you retire depends on several factors, including how much you’ve contributed, the performance of the fund’s investments, and how you choose to receive your retirement income, whether as lump sums or regular payments.

You also have the option to take up to 25% of your pension fund as a tax-free lump sum, should you wish to do so.

Starting in April 2015, savers will be able to access their pensions without limits or penalty taxes in a variety of ways. One option will allow you to keep your pension pot uncrystallised, meaning it won’t enter drawdown or be used to purchase an annuity.

On August 6, 2014, HM Revenue and Customs (HMRC) released draft guidelines for the Taxation of Pensions Bill, which will implement these changes and give savers greater freedom to manage their savings.

The available options include using the new ‘flexi-access drawdown’ fund, which allows consumers to withdraw any amount over a period of their choosing. Alternatively, savers can use part or all of their pension pot to buy a lifetime annuity, providing a regular income.

Additionally, HMRC introduced a third option, enabling savers to take lump sums from their pension after the age of 55 without crystallising the entire pot.

With this third option, savers won’t be required to immediately decide on taking their 25% tax-free lump sum or allocating the remainder to drawdown or an annuity at the same time.

According to consultancy firm Towers Watson, this new flexibility will offer savers more planning opportunities. Dave Roberts, a consultant at the firm, stated, “For savers who are still working and do not expect their future retirement income to exhaust their full tax allowance, they may prefer to take tax-free withdrawals now and defer taxable withdrawals until later.”

Mr. Roberts also mentioned that the Pension Schemes Bill, currently under review in Parliament, is likely to strengthen the entitlement for members to transfer their pension from legacy schemes that don’t offer the new drawdown options to those that do.

Please note, the above information is based on our understanding as of August 2014 and may be subject to change.