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The pension freedoms will allow withdrawals from April, but there is a catch.
If you are planning on taking your pension after April, you could save yourself thousands of pounds by familiarising yourself with some of the pension tax rules – to make sure you don’t pay too much. From April, workers over 55 will be able to use their pensions “like bank accounts” and withdraw thousands of pounds to spend as they wish. More than 200,000 people will cash in their entire pension pot when the reforms take effect, with one in five planning to use their savings to fund a holiday, an Ipsos MORI study has found. But depending on their income and how big their pension pot is, these savers could face eye-watering tax bills. As calculations by broker Hargreaves Lansdown show (see below), people choosing to take their pensions as cash in one go will pay substantial tax. If you don’t need to take a cash lump sum from your pension, you could save yourself a big tax bill by choosing to extract money from your pension over a number of years. As with each of the three scenarios to the top right of this page, someone with similar amounts of money could reduce their tax bill by choosing to take lump sums over the course of two, three or four years.
The key to understanding when you could be overtaxed is recognising that money taken from pensions will be added to your taxable income for that period and taxed at your marginal rate.....Read more here
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The Financial Conduct Authority (FCA) has today written to the Chief Executive Officers of pension providers to outline plans to introduce additional protection for those accessing their defined contribution pension pot from Apri. Under the new additional protection rules firms will be required to ask consumers about key aspects of the circumstances that relate to the decision they are making about their pension pot. These include issues such as health and lifestyle choices or marital status. This will come into force from April.
Providers will be required to give relevant risk warnings, such as warning of the tax implications of their decisions, in response to answers from consumers. Firms must also further highlight the availability the government’s new Pension Wise scheme or regulated advice.
Christopher Woolard, director of strategy and competition at the FCA said: “The decisions consumers make about what to do with their pension pot are important and in some instances these choices are irreversible. We want to make sure that people have the help they need to make those choices.”....Read more here