How the Pension Changes in the UK Affect Me
Not many pensioners in the UK are aware how the biggest pension changes in 100 years will affect them.
In fact, only 17% of British pension holders are aware of these changes, and how it affects their retirement and their wealth.
Before we explain what to do about the changes, let’s recap what the pension changes are and how it will affect the British pension holder.
A Summary of UK Pension Changes:
- Your Life Time Allowance (LTA) has been reduced from £1.25m to £1m.
- You get less tax free contributions.
- If you have a defined contribution scheme in the UK, the previous access age was 65, now it is 55.
- You can now access 100% of your UK pension, where previously it was only 25% which forced you to leave the balance as a source of income for your retirement.
However, if you choose to access 100% of your pension you could be heavily taxed in the region of 40-45% tax.
The UK gave access to free financial advice in an attempt to ease the pain of adjusting to these pension changes by creating www.pensionwise.org and offering free financial advice. The demand for financial advice was higher than their allotted resources (ratio of 7000:1) resulting in delays and frustration. Finding an independent, unbiased financial advisor eliminates this.
So, What Do I Do if I am a UK Pension Holder and Want My Wealth Managed?
Here are several things to consider now that you have greater access to your pension – how do you ensure you have made correct provision for your income needs in retirement?
How do you make sure you can leave a legacy?
Here are Some Insider Tips You Need to Know:
- Seek independent financial advice with an independent financial advisor, so that you know what your options are.
UK advisors don’t typically deal with QROPS, and so may not be up to date on the latest QROPS developments, and will be unable to advise you accurately.
- Ensure you understand the benefits of QROPS and the implication of leaving it vs. transferring it into a QROPS.
Things Worth Knowing about QROPS:
- Gibraltar has a very favourable flat tax rate of just 2.5% of total income on pensions – compared to the UK’s sliding scale of 0 – 45%.
- However, Gibraltar does not allow for 100% access to pension age 55, rather 30% is available in a lump sum, leaving the rest to generate income.
- You get a wider range of investment options in QROPS as you are not limited to just FCA approved funds.
- QROPS offer greater flexibility, may have significant tax efficiencies and are geared to cater for individuals who have an international mind-set. Plus, if you move back to the UK, you can still keep your pension in the QROP. It is then treated in line with UK pensions, with the caveat that only 90% of your income when received in draw down is taxed at the marginal rate as opposed to 100% of income being taxed at the marginal rate.
Where to from here?
Go and seek advice from a regulated, independent financial advisor in the country that you are resident and ask them to conduct an analysis of your current circumstances, so that you know the pros and cons of options available to you.
Click here for a Carrick advisor to contact you.
— Carrick Wealth (@CarrickWealth) May 8, 2015