'new pension freedom'

JennyF

hello, can anyone tell me if the proposed 'new pension freedom' rules have been passed by parliament to date (I heard it went through recently). I have a private pension that I paid into years ago when I was working full-time and I'm hoping to withdraw the entire amount next April. I turned 55 last November 2013 and was planning on taking the 25% tax free cash lump sum in September of this year and organising an annuity with the remainder but I'd rather wait until next year and take the entire amount if given the choice, thank you.

kidmugsy

Be aware that the 75% is exposed to income tax at the normal rates; 0%, 20%, 40% ....

For many people that will mean that it's better to take it in stages over a few tax years. That could in your case mean that it's worth taking part of the 75% in this tax year by going into "capped drawdown". It depends on your income, and how big your pension pot is.

Another consideration is what the pension pot is invested in. If I were planning to withdraw it soon, I might well want it in cash rather than equities.

SomeUser

You can take the 25% now and leave the rest until next year if you want.

Yes, if/when you take the rest, you'll be taxed on it at your marginal rate. If you want to leave some of it and take it later to limit tax, you'd need to transfer it to a drawdown arrangement but you'll end up paying more in charges (still currently high but they're expected to come down as the market place creates new innovations).

And yes, you might want to see what it's invested in.

kidmugsy

There's a withdrawal calculator here.
http://www.invidion.co.uk/pension_fund_withdrawal_calculator.php

The permitted "capped withdrawal" rate for someone your age might be too low to interest you for this tax year. Try it yourself.

JennyF

I've been advised by my pension company that my only options would be to either take the full amount, or buy an annuity with the 75% remainder, to which I would then be tied to; transferring the funds to another more flexible pension company would involve one and possibly two sets of penalty fees. I'm not working so it would seem that I would have my full tax allowance, with the remainder being taxed at 20%, which wouldn't work out to be too much after my 25% tax-free cash lump sum. on paper at the moment it seems as though it would work out well for me; I will try and see a financial advisor between then and now to clarify for sure; thank you for your advice.

kidmugsy

JennyF wrote: »

I've been advised by my pension company that my only options would be to either take the full amount, or buy an annuity with the 75% remainder, to which I would then be tied to; transferring the funds to another more flexible pension company would involve one and possibly two sets of penalty fees.

Fair enough. If the penalty fees for transferring would be bigger than the income tax you could save by doing it in stages, then doing it in one fell swoop next tax year seems best.

atush

If you want to retire, before your state pension or other work pension, you could find it advantageous to leave this money invested until you want to retire early So as to not reduce any other pensions?

SomeUser

Under transitional rules, you can tax the tax free cash now and leave the rest until next year. This only came out at the end of the consultation in July.

The changes are mainly concerned with the normal requirement that for a pension commencement lump sum to be paid tax-free it must paid within certain time-limits and have a pension associated with the lump sum. The changes allow individuals longer to decide how to access that pension and for the pension to be paid from a different scheme to the PCLS. These special rules are temporary and individuals will
need to take their pension commencement lump sum before 6 April 2015 and the associated pension before 6 October 2015 for these rules to apply.

From hmrc here http://www.hmrc.gov.uk/pensionschemes/newsletter64.pdf

And this might be a bit clearer http://www.professionalpensions.com/professional-pensions/news/2356075/hmrc-publishes-guidance-on-transitional-arrangements-for-pension-freedoms

atush

kidmugsy wrote: »

Fair enough. If the penalty fees for transferring would be bigger than the income tax you could save by doing it in stages, then doing it in one fell swoop next tax year seems best.

look at the figures as suggested and transfer if no great penalty

JennyF

yes the calculator shows the capped withdrawal rate is quite low, about £2,500 a year, which is not really worth it. not a large enough amount of money perhaps to leave it invested either.

JennyF

transferring it seems from what I've found out so far would involve two sets of penalties, one from existing pension company and another from new pension company if I take it before 65, which I'd like to do.