Today marks the first working day of the new tax year. While the beginning of a new tax year is usually quite significant from a financial planning perspective, following the significant announcements made in the budget in March, this year is arguably more important than most.

Below you will find a summary of the main changes which are drastically different from previous tax years:

– Those clients in capped drawdown pensions can now withdraw up to 150% of the governments GAD (Government Actuaries Department) rate. This will mean a substantial increase in maximum income for some clients. A word of caution though, withdrawals at this new higher rate are unlikely to be sustainable for the whole of a retirement.

– Those who have £12,000 or more in guaranteed income from state pensions, occupational schemes or existing annuities, will now qualify for ‘flexible drawdown’. This system allows you to have complete access to your accumulated defined contribution pension pots. This facility will be available to all individuals from April 2015, so long as the budget gets through parliament successfully.

– Clients with smaller pension pots can now take up to 3 ‘small pots’ of up to £10,000 each in cash.

– People with total pension savings of below £30,000 can take the whole pot as cash under the ‘triviality’ rules.

– The above rules are a ‘stop-gap’ of sorts until the new pensions regime takes effect from April 2015.

– The government will consult on increasing the maximum age at which you can contribute into a pension from the current 75 and also consider whether to reduce the 55% tax charge on pensions on death.

– The ISA allowance for 14/15 is £11,880. This limit will increase to £15,000 when the new ISA (NISA) rules start to apply. Under the new rules, there will be no restriction on the amount you can save within a cash ISA (within the overall limit) and you will be able to transfer between cash and stocks and shares ISA’s.

– The junior ISA limit has now increased to £3,840 and will increase to £4000 on 1st July.

– The capital gains tax exemption is increased to £11,000.

If you would like to find out how the changes announced in the budget could effect your financial planning, please get in touch here.

Following the news last week that we would all have freedom to access our full pension pots at retirement, the media quickly began talking about sports cars and luxury holidays. The problem with the way in which the new pension rules were presented, was that the ‘take the full pot at retirement’ option seemed to be the only one which was being discussed.

The media seemed to miss the fact that for many people an annuity or income drawdown will still be the best way to go, especially for those with low levels of other pension income. While we welcome the new flexibility and simplicity being introduced into the pensions landscape, it does come with several health warnings, namely:

– The risk that people ‘take the full pot at retirement’ and spend all of the money. Clearly this will leave them with a lower income for the rest of their lives.

– The risk that people ‘take the full pot at retirement’ and don’t spend the money. All the saver would have done here is transferred capital out of a tax efficient environment, into a taxable one and paid a large chunk of income tax in the process.Hardly prudent financial management.

– The risk that people will ‘take the full pot at retirement’ and purchase a buy to let property. This particular option seems to be a favourite in the media at the moment, however it does come with some notable flaws. First of all, income tax will need to be paid on the full pension fund (minus the 25% tax free cash), which for many will push them into the higher (40%) rate tax band. A property will then need to be purchased which will incur stamp duty and many other costs, and finally income from property is taxable.

There are many other pitfalls to be aware of when planning your retirement. If you would like advice on suitable options for you, please contact us here.

It was only a couple of months ago now that I penned an article for this blog on the importance of taking a holistic view on retirement planning. I predicted possible increases to the minimum age at which pension benefits could be drawn on and it would seem that my premonitions have come true.

While it was not widely publicised in the aftermath of the budget speech, contained within the consultation document was the revaluation that the minimum age at which pension assets can be drawn upon is set to rise to 57 (from 55 currently) in 2018. This age will then be linked to increases in the state pension age which, in turn, is linked to life expectancy.

While the reforms announced in the budget certainly provide far greater flexibility to prospective retirees and will, no doubt, increase the attractiveness of a pension as a retirement planning tool, for those of us who wish to retire early, there could start to be problems.

The minimum pension age has always been fixed (in a manner of speaking)  and has only changed as the result of a budget or policy initiative. That has all changed now, with the minimum pension age set to be linked to our seemingly ever-increasing life expectancy.

For those who still dream of a retirement before their 60th birthday, it will be more important than ever before to take a holistic view on retirement planning, and make use of the newly increased ISA allowance and other savings vehicles in order to provide accessible funds when they are required.

The need for high quality financial planning advice both at and during retirement will be greater than ever to ensure that accumulated pension and retirement funds will provide sufficient income for life. With greater flexibility comes greater risk, and the chancellor yesterday placed the responsibility on individual pension savers to ensure that they provide for themselves in retirement.

If you would like to find out how the pension changes announced in the budget might impact on your retirement planning, please get in touch to request your discovery meeting, provided at our expense.

Commentary before the budget announcement earlier today had suggested that we were in for a surprise and boy did we get one. The chancellor announced the biggest and most wide ranging set of pension reforms in over 100 years!

The measures are designed to make pension withdrawal far more flexible, reduce previously punitive tax rates on pensions and hand back more responsibility to savers to be in control of their own income in retirement.

The main changes announced today include:

The ability to take 25% tax free cash as usual and then take the remainder of a pension pot as cash which will be taxed at an individuals marginal rate.

A reduction in the flexible drawdown limit to £12,000 meaning that far more people will have unfettered access to their pension savings.

An increase in the capped drawdown GAD rate, meaning people in drawdown plans will be able to take a higher income each year.

The ability to take pension pots under £10,000 in cash. This facility can be used on up to 3 pension pots, giving a total of £30,000 which can be taken in a cash lump sum.

A review into the current 55% tax rate on crystallised pension benefits on death.

There are also some other areas which are being consulted on, most notably the intention for the government to prevent people in public sector pension schemes being able to transfer their benefits into an alternative plan.

We will be following developments in this area closely and will be providing further updates as the situation develops.