Hi all, I have a question for accountant types, I think I already know the answer but here goes.. As some of you may or may not know Mrs Sev was diagnosed with Parkinson's earlier this year. After having been out of work for two years it’s now very likely that she’ll never work again. With new legislation about cashing in your pension policy in my mind, She has a couple of private pensions which if the illustrations are anything to go by will barely pay enough to buy a bag of fish and chips every month when she’s 75 (for some reason he age the illustrations are based on). They will however pay off what’s left of the mortgage. I’m paying 80% of my earnings to keep the house going, and the remaining 20% is what gets me to work and back. If the option was there to release some or all of the monies and we throw it at the mortgage, what are the tax implications? Will she be royally fisted by the inland revenue and be landed with a tax bill that will have us eating Tesco value tin of beans for the rest of our lives? I’m between a rock and a hard place as I could leave my job to go contract, but I need the stability for her sake. The private medical insurance company has already started making noises about not paying for any future scans and care as it is an ongoing degenerative condition (MRI, DAT scan and fees are about a couple of grand). It’s more with the mortgage gone I can afford to do repairs to the house and thus not have leaking windows and replace my aging garage felt roof, you know the stuff. As it is at the moment, it's not about having a pot to piss in, more so just having the piss to put in the pot would be nice. Thanks in advance.
Someone will clarify soon but I think you are only allowed 25% tax free of the total value - then you get stung. I am not sure if it is then tax free up to your yearly limit or not after that.
The remaining 75% is at you highest rate of tax. There is an option to take 25% each year until its all gone, therefore no tax implications. This might be enough to pay the mortgage but only you will know that. Get proper advise though before you do anything.
Thanks Desmoboy, that's great if that is the case, as it still means potentially huge chunks can get shaved off the mortgage each year. Apparently they (the pension companies) are waiting for the law to be concrete and then they will issue the illustrations and options available.
Have a look on -for example -hargreaves lansdown website. There is some useful info there - no affiliation, other financials istes also have info-friends life for example. If in doubt professional advice is always good to take.
Depends on what sort of pension you have -here's a couple of useful sites -independent , the pensions regulator and. DWP advisory one. For individuals - who to contact about pensions | The Pensions Regulator The Pensions Advisory Service You could also do worse than phone your existing pension providers after 6/4 when the new rules come into being-they can at least tell you of your options, which you can verify via research, and advice as needed. My father had Parkinson's, I wish you well. There is a society which he found useful and as is common it depends on your healthcare professionals, my dad found a really good consultant and specialist Parkinson's nurse that helped him understand and manage. All the best.
I have a policy if I cash it in I do not pay any tax on it, so it does pay to get advice, it is a mine field,
Very sorry to hear about Mrs Sev. Parkinson's seems to run an unpredictable course, but I hope you can make some financial decisions that help to reduce stress. Unfortunately pensions and taxation are an area where each successive government changes things (often several times in one parliament) and makes things more complicated. You just have to find a way to navigate through it. As others have said, you must seek professional advice, but without advising you what to do, here are a few things to take into consideration. Generally, access to pensions is very restrictive until age 55 is reached. I don't know whether illness can affect this. The 25% tax free rule is well established, although if we end up with Miliband/Balls/Salmond having their hands in the till, anything could happen - more likely in this area might be a "cap" on how much the 25% can be in cash terms, rather than a reduced percentage. I am not aware of ways in which successive 25% tax free sums can be taken from the same pension, rather than first 25% tax free and subsequent withdrawals taxed as regular income (but no NI to pay). I believe it would be unusual for a new government to make changes which applied in the same tax year that they took office (so I hope the 25% is safe at least until April 2016). Annuities have a bad name, but it should be remembered that the "default" treatment of private pension "pots" used to be, at retirement, to take the 25% tax free cash, and use the rest to buy an annuity, which has the advantage that it provides a guaranteed income until death, whatever happens to interest rates or stock market. The period of low interest rates has made for very poor annuity rates though, but in some cases they may still be the right choice, and it is especially important to compare annuity quotes from various suppliers and to ensure that ill health is taken into account (it's morbid, but the lower the life expectancy the higher the annuity rate). Depending on the type of pension, and the provider, charges can be an issue, so I hope the plans are not with one or the more rapacious insurance companies. TT600 has provided some good links, and I too would recommend looking at the HL site: http://www.hl.co.uk/pensions/retirement-options I don't work for them, but they are well known for the high quality of their services and I think they are very honest about charges.
It's a popular topic. I switched on the radio and before re-tuning to Planet Rock I realised this was on today: BBC Radio 4 - Money Box, Pension Freedom Special
Just a slight aside......... Does anyone know the real reason why the Govt decided to relax the laws on pensions? (Apart from buying older persons' votes, that is). I reckon it is so they can get a massive hit from all the taxation of the funds being taken.....or in another words, just doing what Brown did in a round about way.
There might be a small element of that, but there was an urgent need to do something about the plight of those who have saved for years into defined-contribution schemes who, as a result of a prolonged period of exceptionally low interest rates have been facing much lower annuity returns that they had expected. At least in this case, the extent to which those with pensions of this type may choose to withdraw funds so rapidly that they pay more tax than they might have done is entirely up to them, so it's a voluntary paying of tax, whereas Gordon's raid on dividend income within pension schemes was not something that anyone had any choice about paying.
It suits me: I've always been irritated by the thought of having to buy an annuity,i.e,allowing even more money shufflers to dip their sticky fingers into my pension savings.They lied about how much my pension would be,and don't mention endowments.... If I had a free hand with all of it,I'd put it into property,but as it is, the 25% I can take tax-free will go into old bikes for me to enjoy until the day when I decide to retire properly
Sorry to hear about Mrs Sev. Get proper advice on this, rather than a bunch of bikers advice, as it's a minefield. SWMBO recently had pension/tax advice from her employer which she challenged. And good job she did as the advice given by her HR dept was purely to benefit them in the long term and not her.
Part of the reason is because for many years the Pensions industry has claimed that they cannot possibly operate on lower percentage charges. The government does not believe this and decided to bring them to account. As proof and for example, compare a Danish retiree with a british one. If all other factors are taken into account and for the same contribution each month the Dane will retire on 50% more per month. This is because the European pensions companies operate on much smaller fee's and charges from your contributions. The way the Government has decided to bring them to account is to let pensioners themselves have their own money. Some will blow it but i believe its a good idea. Government of course will get a windfall which will have been part of the reason and it might make the pensions companies realise the easy times are coming to an end for them.
As per post 5 and 6 I've had Nat Insce advice from DWP which i challenged and sure enough they had got their dates wrong on legislative implementation. Get advice and check it and check it again until YOU are sure and absolutely clear.
