What Should You Do With Your Pensions?

Deciding what to do with your pension funds under the new pension freedom could be one of the most important financial decisions you make. It is vital you have all the facts on the new options and carefully consider the implications of each.

The new pension freedom from April 2015 is welcome news for anyone with UK pension funds, whether they are resident in the UK or elsewhere. If you are an expatriate, it could help you restructure your pension savings so that they are more suited to your current circumstances, though you also need to consider possible future plans.

Your pension savings are essential for providing you with financial security right through retirement. Deciding what to do with your funds once the new rules come into effect could be one of the most important financial decisions you make.

It is therefore vital that you have all the facts about your new options, and then carefully consider the implications of each option. This includes taxation in the UK and your country of residence; leaving the balance to your heirs; what control you have over investment options; what income will be generated, and ensuring you do not run out of funds in your later years. You can only determine which option is right for you once you have weighed them all up.

Specialist, professional advice is essential. It is the only way to ensure you have all the information and understand how each option affects you. Your personal situation is unique – just because you hear of people taking one approach does not mean it is right for you.

Here is a summary of some of the key changes for those aged over 55 with defined contribution schemes.

From 6th April 2015 you will be able to draw down as much of your pension funds as you like, even the whole amount. You could take a series of lump sums from your pension funds without having to enter into a drawdown policy.

The 55% pension ‘death tax’ will be abolished, including for annuities. Your beneficiaries will receive the balance tax free if you die under age 75, or pay income tax, or 45% if taken as a lump sum, if you are over 75 (which could change to income tax rates from 2016). This does not affect people in final salary pensions.

Many of the new pension options apply specifically to defined contribution schemes. From April 2015 those with private sector defined benefit pensions (final salary schemes) could transfer to a defined contribution scheme, but be aware that you could lose valuable benefits – so this would need very careful consideration. Transfers can only be made with advice from a pension transfer specialist regulated by the UK Financial Conduct Authority. Most Public Sector schemes will not be able to transfer after April 2015.

Taking professional advice from a regulated adviser will give you peace of mind that they are following all the rules and providing suitable advice for you. Sound financial planning and personalised advice is crucial, particularly for those with larger funds.

21 January 2015

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.