Think before pension diving
Jaskarn Pawar Chartered Financial Planner at Investor Profile talks new pension changes
I know there is probably a lot of interest brewing among those with Pensions and are over the age of 55 at the possibility of being able to access that pot of money when the rule changes come in to force in April 2015. However, investors do need to be very aware of the implications of their actions before making any hasty decisions as to what to do with their pension assets.
First and foremost, getting access to your Pension money is not that straightforward. It will not simply become an open pot for you to access freely. There will be tax to pay if you access more than your tax free allowance, which in a typical case would be 25% of the value of the Pension. So if you want to draw more than 25% of your Pension next year then whatever amount you draw will be added to your income for that tax year and taxed as normal income.
In a simple scenario where you earn £30,000pa and draw £10,000 from your Pension in excess of the tax free cash allowance, then you can expect to pay £2,000 in tax and actually receive £8,000 yourself with £2,000 being sent to HMRC by your Pension provider.
So these new rule changes are probably just as exciting for the Government as they are for you. They are expecting to receive an immediate boost of income tax receipts without really having to do anything, you do all of the work and worrying for them.
So before you do take any action or make any decision do think it through carefully and plan your strategy with an expert adviser that understands your needs.
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About the author
Jaskarn Pawar is a Chartered Financial Planner and Certified Financial Planner. He has more than 10 years’ experience and currently advises clients on integrating investment planning with financial planning.
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