Important information if you for British Expats with an existing UK pension. Take your whole pension as a lump sum. Yesterdays budget may have included probably the most important pension news announced in decades.
It has been proposed that pension investors who have reached age 55, should now be able to take the whole of their pension as a lump sum.
Previously this has always been restricted to 25% tax free as a lump sum (payment commencement lump sum), and the remaining being drawn down as an income in line with GAD (Government Actuary Department) rates. Previously this was deemed as an unauthorised payment and attracted an immediate tax charge of 55%. Pensioners will still have to pay tax on the remaining 75%, however this will be at their highest marginal rate.
New higher income rates
With effect from the 27th March 2014 drawdown rates will increase from 120% to 150% for all pensioners starting drawdown after this date.
Drawdown is the yearly limit set by the government, which outlines the amount of income that can be drawn from a pension. You can choose from zero to the maximum.
How does this affect you?
An example of an pensioner aged 65 with a pension pot of £100,000 today, can draw a maximum income each year of £7,080, as of the 27th March 2014 this will increase to £8,850*.
* This is based on a fund of £100,000 and uses the current Government Actuary Department tables for March 2014 to show maximum incomes for a 65 year old. The underlying gilt yield can change. Male and female incomes are equal, with effect from December 2013.
Your pension is now more accessible from 27 March with Flexible Drawdown
Using Flexible drawdown will allow pensioners to make unlimited withdrawals from their pensions. A number of qualifying rules must be met however, in order to qualify. The most important rule is that you must have a secure pension of at least £20,000 a year. This will be lowered to £12,000 making your pension more accessible.
Cash in smaller pensions as a lump sum
The trivial pension rules previously allowed you to cash in a pension pot if the total amount was less than £18,500. Now if your pension pot is less than £30,000, then the first 25% is tax free as a lump sum and the rest is taxed as income.
Contact us today to find out how these historic major changes in UK pension legislation may affect you?
Your Affinity Global Wealth adviser can provide a free pension review and assessment, there is no cost for an initial meeting and there is no obligation to take our advice.
T: + 351 289 314 530