Senior Financial Planner, Norman Dalgleish and Financial Planner George Martineau discuss the changes to UK pensions and the benefits of those pensions changes. Watch the video here.
David: Hello, and welcome to the Turcan Connell Asset Management videocast, covering financial planning. I'm here with Senior Financial Planners, George Martineau and Norman Dalgliesh and we're going to be talking about pensions.
Norman, there has been quite a lot happening in pensions in the UK at the moment, can you tell us a bit more about what changes have taken place in the last year?
Norman: Yea, the proposals the government have made through 2014, really represent a radical change in ethos behind pensions and pension savings. To date, really, money you accumulate in your pension, the government then limits how quickly you can spend that. It doesn't want you spending it all and then rushing back to live off the state. So it limits how quickly you can spend it. But come next April, there are two really big changes. The first is about the flexibility; that you can access your pension, once you're 55, as quickly as you want. At the extreme, you can go in the next day and draw it all out. Typically a quarter will be tax free, the other three quarters you pay income tax on and then free to do with as you please. The other change is about the death benefit position. Historically, there has been occasions when a 55% tax charge would apply and this will now no longer apply in any position on death.
David: So, George, do these proposals make pensions more attractive?
George: Yea I think they certainly do. For those already in retirement, receiving final salary pension income or annuity income, the change isn't that considerable, but for those accumulating pension income, it's a fantastic opportunity for them. It's much more flexible than it used to be, so considering people who are accumulating; they put money into a pension, they don't pay tax for a, you know, higher rate. For an additional rate taxpayer that's hugely efficient. And when they take that pension income, 25% of that is tax free and the remainder is taxed at your marginal rate, so later on in life you may be a basic rate tax payer, so it's really important that people consider this additional flexibility as part of their overall financial planning.
David: We did mention there are people who are already in retirement, what situation are they in?
Norman: For people already in retirement with pension funds, the changes, again, are fundamental to them. Historically, really, what you did with your pension fund involved a sort of trade-off; either you left it untouched and it had attractive death benefit features, or you started to take the money out as quickly as you could to leave as little behind to suffer the 55% tax. That sort of compromise or trade-off, is totally removed now, so people are free, really, to exploit the flexibility, to draw out as much as they want from their pension or, and this is perhaps even bigger for many clients, is that the attractive position on death means that if you have other assets and income to live on in retirement, then leaving money within your pension is attractive in the sense that it is now a very efficient way of passing money on to the next generation. The devil's obviously always in the detail and the details are still a bit sparse, but it also appears that the recipient of that fund could themselves leave any remaining fund to the next generation and as such, pensions really look like they're becoming a very attractive way of passing money down several generations within the one family.
David: So, given that pensions are essentially more attractive now, what should people be doing now to take advantage of this?
George: Well, I would say that it is always flexible and the Chancellor has made certain announcements that may change in the future, but I think it is very important for people to reconsider the way in which they save for retirement. I would say to people who have traditionally saved through ISAs, property and a whole range of different investment products, I think pensions are so much more attractive now, it's an excellent opportunity for them to visit a financial planner, discuss their requirements in more detail, and really structure their finances in a different way. So, this is a real tipping point, which has all been catalysed by pensions.
David: George, Norman, thank you very much. So, for more information on how Turcan Connell Asset Management can help you plan for your financial future, go to www.turcanconnellwealth.com.
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