Using Pension Freedom to your Advantage
The introduction of Pension Freedom in April 2015 will allow options that were previously only open to high earners. In essence Pension Freedom gives you greater control over your pension pot, and the scrapping of the infamous death tax gives you options you previously never had. If you are shrewd you can open the door to greater wealth in retirement.
Pension Freedom vs. High Interest Savings Account
Retirement brings with it many questions most of which are financial. Providing you have a provider who is prepared to implement it, Pension Freedom arguably tears up the rule book as you no longer have to buy a pension with your funds. Instead, you simply make withdrawals from it as and when you want to. Tax being the main consideration here.
Moreover, Pension Freedom brings with it fewer tax burdens should one of you die. Currently, should either you or your spouse pass away, the government will claim 55% of your pension in death tax. So if your pot is £300,000 for examples, the taxman will take 55% on death. This phenomenal amount of money reduces to 40% should your funds be in a high interest savings account. Nonetheless, at £120,000 is still a large chunk to lose.
Pension Freedom with its scrapping of the 55% tax allows for two options:
- Use existing savings to live on leaving your pension untouched. As there is no death tax to pay, all beneficiaries will receive the full amount of the pension pot should you pass away.
- Invest in your pension pot rather than high interest savings account, and protect your assets from the taxman on death.
Is Merging Pension Pots a Valid Option?
At the moment there is a lot of merit in equalising pension assets if you are a married couple. This helps you both use tax free allowances. Under Pension Freedom, it could be advisable to merge the pension pots, especially if one of you is a higher rate tax payer.
Due to Pension Freedom, your pot at retirement benefits from higher tax relief. Based on a gross rate of 5% the pot could be 32% higher than under conventional pension arrangements.
Financial planning is essential to make your funds stretch to give you a good quality of life in retirement. Pension Freedom when used correctly, will make a significant difference to your wealth management.
To make the most of pension planning and for a better retirement click here and complete the Call Back Service Form. As a well thought of financial professional I can look at your existing arrangements and look to improve them. The sooner you start planning for your retirement, the better your assets can be allocated, keeping pace with legislation as it comes into play. Click here now.
Source: FT Adviser
For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at