What are Pension Freedoms?
THE VALUE OF PENSIONS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.
In 2015, the government announced a major change for pensions in the UK. The focus was on providing greater pension freedom, and giving people the opportunity to select what type of pension they wanted.
If you’re planning ahead for your retirement, here’s some useful information about pension freedoms to help you.
What are pension freedoms?
Before the changes were made, pension options were limited. Now, you’re free to select from the following choices:
- Leaving your pension as it is (e.g. as a workplace pension)
- Receiving an adjustable income when you retire (called a Flexi Access Drawdown)
- Buying an annuity
- Taking the funds in chunks (called an Uncrystallised Funds Pension Lump Sum)
- Cashing in the entire pension fund in one lump payment
- A combination of any of the above
Pension freedoms FAQs
If I purchase an annuity, which one should I choose?
There are a lot of annuities to select from, so it’s a wise idea to get some professional financial advice. The exact amount you’ll get from an annuity depends on a number of factors, such as:
- When you purchase it
- How much you have in your existing pension
- Your health
- Your lifestyle choices (e.g. if you’re a heavy smoker or drinker)
Remember, you don’t have to use all of your pension funds; the amount used is up to you.
Is there any advantage to taking out the entire pension as a lump sum?
You can take 25% of your pension as a tax-free lump sum, which is useful to bear in mind. If you choose to take out the remainder, this gives you a lot of financial freedom, but remember, it’s your responsibility to ensure it covers your retirement needs.
Other options might work better for you. For example, you could leave the 75% invested in stock, and ‘draw down’ from your funds when you need them. If you’re not sure what the best option is, it is wise to seek financial advice.
What are the advantages of a draw-down option?
The major benefit of draw-down is that your investments may rise before you ‘drawn down’ from them. This means your pension will be working hard for you, and making you more cash in the long-term.
However, the same can apply in reverse. Investments can suffer, which means you’ll lose money. Make sure you select a pension product that matches your attitude to financial risk.
What happens to my pension when I die?
If you’ve selected income drawdown, your beneficiaries can receive a lump sum or tax-free income, providing you’ve passed away before the age of 75. You also need to check with your Annuity provider.
If you’ve chosen to purchase an annuity, your beneficiaries will receive the payments via a value-protected, guaranteed or joint-life annuity, without paying tax. Again, this only applies if you’ve passed away before your 75th birthday.
What’s the MPAA?
Introduced in 2015, the MPAA is the ‘money purchase annual allowance’. It allows you to carry on paying contributions to a DC / workplace pension scheme, while enjoying the freedom of a flexi-access or uncrystallised funds pension lump sum.
Your annual allowance towards your defined contribution benefits will be reduced to £10,000.
Choose the right option for you
When it comes to selecting a pension, it’s vital to make the right choice. To explore your options, get in contact with Quilter Financial Advisers today, by calling 016973 25852.
THE VALUE OF PENSIONS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.
In 2015, the government announced a major change for pensions in the UK. The focus was on providing greater pension freedom, and giving people the opportunity to select what type of pension they wanted.
If you’re planning ahead for your retirement, here’s some useful information about pension freedoms to help you.
What are pension freedoms?
Before the changes were made, pension options were limited. Now, you’re free to select from the following choices:
- Leaving your pension as it is (e.g. as a workplace pension)
- Receiving an adjustable income when you retire (called a Flexi Access Drawdown)
- Buying an annuity
- Taking the funds in chunks (called an Uncrystallised Funds Pension Lump Sum)
- Cashing in the entire pension fund in one lump payment
- A combination of any of the above
Pension freedoms FAQs
If I purchase an annuity, which one should I choose?
There are a lot of annuities to select from, so it’s a wise idea to get some professional financial advice. The exact amount you’ll get from an annuity depends on a number of factors, such as:
- When you purchase it
- How much you have in your existing pension
- Your health
- Your lifestyle choices (e.g. if you’re a heavy smoker or drinker)
Remember, you don’t have to use all of your pension funds; the amount used is up to you.
Is there any advantage to taking out the entire pension as a lump sum?
You can take 25% of your pension as a tax-free lump sum, which is useful to bear in mind. If you choose to take out the remainder, this gives you a lot of financial freedom, but remember, it’s your responsibility to ensure it covers your retirement needs.
Other options might work better for you. For example, you could leave the 75% invested in stock, and ‘draw down’ from your funds when you need them. If you’re not sure what the best option is, it is wise to seek financial advice.
What are the advantages of a draw-down option?
The major benefit of draw-down is that your investments may rise before you ‘drawn down’ from them. This means your pension will be working hard for you, and making you more cash in the long-term.
However, the same can apply in reverse. Investments can suffer, which means you’ll lose money. Make sure you select a pension product that matches your attitude to financial risk.
What happens to my pension when I die?
If you’ve selected income drawdown, your beneficiaries can receive a lump sum or tax-free income, providing you’ve passed away before the age of 75. You also need to check with your Annuity provider.
If you’ve chosen to purchase an annuity, your beneficiaries will receive the payments via a value-protected, guaranteed or joint-life annuity, without paying tax. Again, this only applies if you’ve passed away before your 75th birthday.
What’s the MPAA?
Introduced in 2015, the MPAA is the ‘money purchase annual allowance’. It allows you to carry on paying contributions to a DC / workplace pension scheme, while enjoying the freedom of a flexi-access or uncrystallised funds pension lump sum.
Your annual allowance towards your defined contribution benefits will be reduced to £10,000.
Choose the right option for you
When it comes to selecting a pension, it’s vital to make the right choice. To explore your options, get in contact with Quilter Financial Advisers today, by calling 016973 25852.
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