Under government legislation that came into effect in April 2015, access to a pension pot has been opened up to give the option to the policyholder to use their fund in any way they wish after the age of 55.
- Take up to a quarter (25%) of a pension pot tax-free and convert some or all of the rest into a taxable retirement income.
- Take up to a quarter (25%) of a pension pot tax-free and take some or all of the remainder as a lump sum, which will be taxed as if it were income.
- Withdraw cash in stages, with a quarter (25%) of each withdrawal tax-free and the remaining three quarters (75%) taxed as if it were income.
It is possible to continue to save into a pension and benefit from tax relief, even after starting to withdraw cash.
Although Pension Drawdown has become far more popular and widely used over the last few years, many people have still used their pension pots to buy an annuity to provide a regular retirement income, and this option is still available. The rules now offer complete choice and flexibility about how to use a pension pot to fund retirement income. They also encourage more people to save into tax incentivised pension plans knowing the freedom of choice is there for how and when benefits can be taken.
Pension Death Benefits
The previous death tax on pension funds of 55% is now scrapped. This means that on death before age 75 with some or all of a pension fund still invested, this will pass to beneficiaries tax-free.
On death over age 75 beneficiaries can either:
- Draw money from the fund themselves which will be taxed at their marginal rate (as if it were income).
- Take the fund as a lump sum, which until April 2016, will be taxed at a flat rate of 45%. From April 2016, lump sums will be taxed at the beneficiaries’ marginal rate.
Optimum Investment Management (OIM)
Maintaining pension funds into retirement to take advantage of both income drawdown and death benefit rules can prove to be sensible retirement planning. However, it brings with it the inevitable fact of being exposed to investment risk. Risk and volatility can be mitigated by investing across all asset types via a range of collective investments such as Unit Trusts or OEIC. The Optimum Investment Management (OIM) service is designed specifically for such a purpose. Diversified and risk rated portfolios are reconciled with a clients individual tolerance and attitude to risk. Portfolios can be incorporated within a pension tax wrapper, for benefits in retirement purpose, thereby giving diversified risk managed investment coupled with efficient retirement planning.
Personalised Retirement Options
Retirement options from Optimum will be specific and bespoke to our clients individual circumstances and will consider their retirement income needs, tax position and preferred balance between risk and return.
Having both retired in the last few years we sort advice on pensions and investments. We have found Optimum to offer excellent sound advice and performance in both areas. We were recommended to Optimum, and would and have, recommended them to others.C & P Windsor