Pension Rule Changes
Wednesday 9 September 2009
From 6 April next year, the minimum age for drawing a private pension will rise from 50 to 55. This change will come as a shock to some.
This is good news and bad news. Why?
Deadlines create ‘selling’ opportunities to some financial advisers that receive commission.
In truth clients need fee-only advice to review their financial situation. By divorcing the product sale from the advice, a client can be assured they are getting the right solution. Whilst it may appear attractive to take the tax free lump sum early, it should be very carefully considered.
We have detailed below some dates that might be applicable to you.
Take someone born on 7 April 1960. Before these changes to the minimum retirement age, they could have started drawing their pension from their 50th birthday on 7 April 2010. Now, they will have to wait until 7 April 2015 – their 55th birthday – before they can touch their pension. Everyone between age 50 and 55 after 6 April 2010 is affected in the same way, and there is nothing they can do about it.
Anyone age 50 before 6 April next year? If so, they still have a chance to make plans for their pension before the changes take effect.
For example, someone born on 18 May 1958 could have started drawing their pension now. However, if they have not taken their pension by 6 April 2010, they will have to wait until 18 May 2013 – their 55th birthday.
In truth, few people can afford to retire on their 50th birthday (or their 55th birthday for that matter), but that doesn’t mean that they shouldn’t take all or part of their pension early. With a personal pension, there is of course no need to retire when the policyholder takes the benefits but for members of employer pension schemes, it’s worth checking with them first to make sure this will not cause any problems. For instance, some employers stop payments into the fund if the pension is taken early.
Take the tax-free lump sum, re-invest, and get more tax relief
Taking their tax-free lump sum early and re-investing it in to their pension is very tax efficient. As they pay no tax on this part of the pension, by taking it and immediately reinvesting it, the client can increase the size of their pension pot because they get more tax relief. A basic rate taxpayer would get an extra £2,500 in tax relief on £10,000 reinvested and a higher rate taxpayer twice that amount.
The downside of doing this is that once they have taken their tax-free lump sum, they can’t take it again. Although they can get another tax-free lump sum on the amount re-invested. Her Majesty’s Revenue and Customs are aware of the tax advantages and have complicated rules that prevent recycling too much of the tax-free lump sum. In basic terms, don’t reinvest lump sums of more than 1% of the lifetime allowance (equal to £17,500 in this tax year) in any 12-month period, and there will be nothing to worry about.
‘Phasing in’ your pensions?
Others that should think about the change to the minimum age for drawing their pensions are those who are ‘phasing in’ their pension.
For example, those giving up high-pressure jobs in their early 50s, but continuing to work at something they find more enjoyable, often find that they have to take a cut in earnings. By taking part of their pension, they can continue to manage their budget and the gradual shift from full-time work to retirement.
Anyone aged between 50 and 55 on 6 April 2010, and phasing in their pension, may need to take action if they plan to draw more of their pension. For example, if the next planned withdrawal is due in May 2011, this can only be taken if aged 55 or over at this date.
People in this situation can bring forward any planned withdrawals between 6 April 2010 and their 55 birthday, to 5 April 2010 or earlier.
If you are concerned by this rule change and how it affects you then please do not hesitate to contact us for conflict free advice.
posted by Murray Round Wealth Management @ 10:00,
Financial Planning Week - Ask the Expert
Tuesday 8 September 2009
7-13th September is Financial Planning Week. See www.financialplanningweek.org.uk for more information.
Financial Planning Week does not aim to promote products or services just to highlight how people can take control of their lives by planning what they want to achieve and taking some simple steps to help them to get there.
To help promote Financial Planning Week 2009, we are offering 'Ask an Expert' service.
As a fee-only Wealth Management firm, we believe there are conflicts of interest when commission payments are made to financial salespeople. It is our experience that most people want advice, rather than being sold a product. We are therefore pleased to announce for this week we are launching the "Ask an Expert" program.
Take advantage of this FREE service to obtain general advice and basic money and investment tips. Simply email us and get help on ways to improve your lifestyle and financial situation. We will answer your questions on financial matters as wide-ranging as pensions, savings and investments, managing tax and retirement planning. The answers given will be directly emailed to you. However, they will be limited to general financial advice which does not take into account your personal circumstances.
Simply email your questions to service@murrayround.co.uk. Alternatively, you may prefer to telephone us on Wednesday 9th September between 10am and 4pm. The telephone number is 01743 248108.
The 'Ask the Expert' program was featured in the Shropshire Star's business pages. Click here to see the article.
posted by Murray Round Wealth Management @ 10:00,
How good is the food you eat…
Tuesday 1 September 2009
I have been interviewing to replace my PA/client service administrator as she is getting married and then off travelling for a year…(perhaps she has it right not me!).
One of the prospective candidates had previous experience as a part-time waitress.
In the discussion we agreed that most people do not complain unless the food or service is really bad to make a difference. Most of the time, most accept that the food or service is sometimes exceptional, but most of the time, its average.
In the investment world, most people don’t really want average, understandably, you want the best returns, in fact it’s natural to think that way.
Yet, here’s the bad news. Many investors do not even get the average return in the market. In fact, it’s often less than average. But if you think it’s above average, you will take no action to change how you invest.
Unlike food, where you compare the tastes, you can make judgments about what is good food and exceptionally good food. Your money is different. You may only find out you have less than you expected at retirement, then it could be too late to make a change.
It is therefore so important to review our investments. We can give your investments a Michelin Star or not as the case maybe.
posted by Murray Round Wealth Management @ 16:48,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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