Archive for the ‘pensions’ Category

Winners and Losers from the 2016 New State Pension

Friday, February 26th, 2016

Winners and Losers from the 2016 New State PensionThe New State Pension comes into force from 6 April 2016 and new UK pensioners will find a number of differences, with some pensioners gaining from the changes, while others will lose out.

What is the New State Pension 2016?

The new pension applies to everybody reaching pensionable age on or after 6 April and amounts to a maximum total benefit of £155.65 each week. Amounts of pension due are based on National Insurance records and pensioners will need a minimum of ten years payments in order to qualify for the minimum payments.

The new maximum pension is higher than the existing maximum rate of £115.95 weekly, however, you need at least 35 years of qualifying National Insurance contributions to achieve payments at this level. You could still qualify for the maximum pension if National Insurance credits were allocated at times during your life, for example if you were a carer, unemployed or parent with childcare responsibilities.

Does Everyone Qualify for the New State Pension?

The UK Government has failed to highlight just how many changes have been put in place and how they will affect new retirees and people who are approaching retirement age. An MPs enquiry is currently underway to investigate reasons the government failed to communicate all the forthcoming changes in a comprehensive manner to the public.

Reviews of the new regulations have already highlighted that only about 37 percent of retirees in 2016/17 are likely to qualify for the full rate of payment, as anybody who contracted out of the State Pension Scheme to join employment schemes will be unable to receive full payments. If you don’t qualify for the maximum payment, payments made into vocational schemes should ensure you won’t lose out financially.

Who Are the Winners and Losers Under the New Pension Scheme?

The major losers under the new scheme will be higher earners who won’t qualify for such generous state pension. It is felt likely that these pensioners would usually have built up substantial vocational pension and/or savings to mitigate any losses, however.

Winners under the new scheme are likely to be women who may only have partial National Insurance contribution records, alongside substantial credits due to carer responsibilities. Additionally, self employed people who have run their own businesses are likely to have access to higher payments. The total benefit to women and the self employed under the new regulations is likely to amount to around £40 per week, so it’s a genuine increase for some people retiring from April 2016 onwards.

What Can You Do to Improve Your Life At Retirement?

Increased likelihood of living longer has also meant reforms to the retirement age. From the year 2020 pensionable age goes up to 66 for men and women, and increases to 68 by the year 2046.

If you’re nearing retirement age now, it may be disappointing to consider you could have to work until the age of 66 and it’s important to find out what your state pension is likely to amount to. It’s possible to receive an accurate state pension forecast if you’re over the age of 55, and this will give you indicators of any additional savings or investments you need to put in place.

There are a number of resource available to help you understand all the potential pension and saving options. However this information is often generic and should not be taken as advice. In order to make the best decision about your financial future it is recommended that you seek professional pension advice from an experienced adviser. They will be able to help you put together a savings plan that fits your needs.

Maxim Wealth Management have been helping clients across the UK find their perfect saving vehicle since 2001. If you are interested in financial advice please contact us today for a free consultation: Glasgow 0141 764 0040 or London 0207 112 8654.

5 Pension Mistakes You Should Avoid

Wednesday, February 10th, 2016

5 Pension Mistakes You Should AvoidMany young people don’t think about their retirement. Even people reaching that inevitable age can bury their heads in the sand about building a pension pot; not wanting to face the truth that they are growing older.

This way of viewing retirement is understandable however the sooner you begin saving, the bigger the pot you will be able to build – something your future self will thank you for.

If you are unsure where to begin here are five pension mistakes you should avoid if you wish to maintain a similar standard of living in retirement to the one you have currently enjoy.

1. Not Having a Pension

The basic state pension will change to a flat rate of £155.65 per week from April this year (for people who have paid 35 years of NI). This equates to below £10,000 per annum. For many people this is a huge cut in their salary and not enough to maintain a reasonable standard of living.

You should also consider the fact that the pension age is rising over the next few years, so those wishing to retire in their early 60s will need to have other resources to live on until their state pension kicks in.

2. Delaying Saving

The value of your pension pot at retirement is based on the amount you put in and the length of time it is invested.

Whilst diverting your money into savings early on in your career may seem unfavorable when you are young, your older self will greatly appreciate it.

3. Not Understanding Your Options

There are a number of ways to save for retirement. You might be best suited to an ISA, whilst others may benefit more from a SIPP. What is best for you may not be the same as what is best for your friends or other members of your family. Understanding the difference and finding the option that suits you best is crucial for your pension pot to grow the way you want it to.

4. Failing to Review Your Pension Regularly

Do you know how much your pension pot is worth? Or which funds you have and their associated risk? If you currently have a financial or pension adviser, you may benefit from switching.

5. Not Seeking Pension Advice

The government launched a free service, Pension Wise, to help you understand what you can do with your pension pot money which people had found the website helpful to various degrees. It is important to note that the service offers guidance on what individuals can do, but not necessarily what they should do.

For detailed, individual advice on pensions it is worthwhile researching financial advisers who will be able to provide you with more specific advice on what you should do given your circumstances and attitude to risk.

Maxim Wealth Management offer financial advice from our offices in Glasgow and London. To request a FREE consultation please call us on 0203 841 9941  (London) or 0141 764 0040 (Glasgow). Alternatively you can fill in our contact form and we will get back to you.

The Pension Changes You Need to Know

Friday, February 5th, 2016

The Pension Changes You Need to KnowGeorge Osborne delivered his Spending Review and Autumn Statement on the 25th November last year.

In this statement the Chancellor did not announce any radical changes to the private pension system, for the first in this Parliament. He did however set out proposals for other areas regarding pensions which are detailed below.

The full changes will be understood in the March 2016 Budget.

New Basic State Pension

The new basic state pension will increase by £3.35 to £119.30 a week on April 6, the biggest rise in 15 years.

A New Flat-Rate Pension Will Be Implemented

There will be a new flat-rate pension set at £155.65 a week for anyone who reaches state pension age on or after April 6 next year. For someone working full-time today this equates to approximately 60% of the living wage.

The new flat-rate pensions aims to eliminate the current, complicated systems in which people receive a basic pension as well as extra payments based on their NI contributions.

Auto-Enrolment Delayed

A planned increase in the minimum pensions contributions employers would have to give their staff has been pushed back. The auto-enrolment, originally planned for October 2017 and 2018 will now come into force in April 2018 and 2019 instead.

Changes to Pension Credit

People who claim pension credit will have their payments stopped if they are out of the UK for more than four weeks. This replaces the old limit of 13 weeks.

The State Pension Age Will Rise

From 2020, the state pension age will be 66 for both men and women. This will increase to 67 between 2026 and 2028, and will be then linked to life expectancy after that.

ISA Allowance Frozen

The ISA allowance will be frozen at £15,240 and at £4,080 for Junior ISAs.

Are You Confused About Pension Changes?

If you are confused about the changes in pensions, or are unsure what the best saving vehicle is for you and your family, you should speak to a financial adviser who will be able to explain the possible options available to you.

Maxim Wealth Management are an independent financial advice company, with offices in Glasgow and London, covering the whole of the UK. To discuss your pension or retirement please contact us today:

Email: enquiries@maximwm.co.uk

Glasgow: 0141 764 0040

London: 0203 841 9941

ISAs for Retirement Planning? – Understanding ISAs and Traditional Pension Funds

Friday, January 15th, 2016

ISA PensionsWhen you are planning your retirement you will need to decide which type of saving vehicle will best match your needs.

Whilst your ‘sunset’ years can be a great period retiring can also expensive, and when your regular paycheck stops coming you need to depend on your nest egg to match your lifestyle and expenses.

To make sure that you can not only live well after you stop working full time, but also pay for other expenses; healthcare for example, you would want to invest wisely in a retirement account.

Is an ISA Right for You?

If you choose to invest in cash ISA (individual savings account), not only will your savings work for your retirement years but you will also save on tax.

Because this type of account offers interest without taxes, it could be an ideal tax planning method. This type of investment is more stable so is better suited to those who are risk averse. The downside is that there is the chance that the interest rates will not grow a whole lot, unless you are open to taking more risks.

For people looking for a relatively safe place to invest for their golden years, this might be an option worth considering. Stocks and Shares ISA, while entailing a little more risk, also offer more returns, and the flexibility to invest as you like. It would also lead to greater degree of tax savings. There is also no time limit as to when your account is open for you to withdraw funds. Should you ever find yourself in a financial pinch you can think of using this account to rescue. However, with good financial planning, your savings should remain safe, and there should be no need to prematurely access it.

Pensions Are Still Worth Considering

Pensions have been the preferred way to save for the nest egg for decades. Pensions offer tax rebates, in that the amount you invest attracts relief on taxes, so you get to save more. The more you invest in a pension the more you stand to get as tax relief. Also, for employers that are contributing to an employee’s account, there is tax relief, and for the employee, more funds into the account. However, the planned changes to the tax rates on pension funds, would mean less savings.

Another reason to trust pension accounts is that contributions can be backdated. The contribution limits remain high, although the proposed changes to the law need to be studied in detail. You would also not be able to access the funds until a minimum age, so you would be prepared to do without the cash you saved in your hands, for at least a few years. In such a situation, you might want to consider an ISA. While the money you pay into the pension account may not attract tax, the money you withdraw will carry tax. How much you pay as tax is something your financial adviser will be able to tell you.

The Importance of Financial Advice

The New Pension Freedoms brought in by the current government have shaken up the way people plan for and enjoy their retirement. When it comes to making these important financial decisions, it is important that you seek the advice of a capable financial adviser.

The decisions you take today in regard to your savings and funds for post retirement will have far reaching consequences, for decades to come. That is why with the assistance of a financial adviser, who offers advice customised to your situation, you will be in a situation where you can face the future with confidence.

In addition to understanding the pros and cons of ISA and pension funds, you will also receive advice regarding other types of funds such as savings account, and premium bonds. You might also want to learn more about SIPP or Self Invested Personal Pension.

If you would like to speak to someone about your pension please do not hesitate to contact Maxim Wealth Management on 0141 764 0040 (Glasgow) 0203 841 9941 (London). Alternatively fill out our Contact Form with your question and we’ll get back to you.

Get To Grips With Your Pension Lifetime Allowance

Tuesday, September 15th, 2015

pensionallowanceAs the song goes “I got bills, I gotta pay, so I’m gon’ work, work, work every day.” At some point however, people may want or need to give up going to work every day. Even younger people need to think about how they will pay their bills if they are unable to work for any reason.

If you are intending to give up work permanently, it is absolutely crucial to plan ahead. One option is to save into a pension. If you choose this route, it is important to understand your annual and lifetime allowances. It’s also important to be clear on what will happen if you exceed them.

The following explanation applies to defined contributions pensions. Defined benefits schemes may have different rules.

It also applies to the time before you start to make any sort of withdrawal(s) from your pension pot. Once you start withdrawing money, you may trigger different rules. (search: MPAA)

The Annual Allowance

As its name suggests this is the amount you can save towards your pension each year. Generally speaking you can save an amount equal to your earnings, up to a maximum of £40,000.

If you put in more than you earn, then you will only get tax relief to the amount of your qualifying earnings. For example, if you earn £10K pa and put all of this towards your pension along with £5K from another source, you will only get tax relief on the initial £10K. Alternatively if you earn £45K pa and put all of it towards a pension, you will only get tax relief on the initial £40K.

There are different rules for those who are not in paid employment. At current time, those not in work can receive tax relief on pension contributions up to the value of £2,880. They can pay in more than this, but will not receive tax relief on these extra contributions.

The Money Purchase Annual Allowance (MPAA)

Starting this tax year, making withdrawals from pensions can result in your annual allowance being reduced to £10K pa. This is too complicated to discuss further here. It is however worth being aware of this. If you plan to make withdrawals from your pension fund, it is strongly advisable to check how this could affect your annual allowance.

The Lifetime Allowance

This is the amount of pension contributions on which you can receive tax relief over your lifetime. For most people it is currently £1.25 million and will reduce to £1 million in April next year.

If you are currently asking yourself “how can I save money on my pension pot”, then one possible solution might be to ring-fence your lifetime allowance. This is known as individual protection.

As with the MPAA, the rules around this are complicated. They also depend on the type of pension arrangements you have, i.e. defined contributions or defined benefits. If you do have substantial pension savings, however, it could be worth looking into this.

Pensions and Tax

You may also be asking yourself “what tax will I owe on my pension pot?” The answer here is also likely to be, it depends.

If you take any funds over your lifetime allowance as a lump sum, you will be taxed at 55%. If you used funds over your lifetime allowance to generate a regular retirement income, you will be taxed at 25%.

This is in addition to any tax which is due on the income itself. Income from pensions is taxed in the same way as income from employment. Those who have reached state pension age are, however, exempt from paying national insurance contributions, even if they continue to work.

For pension advice please contact Maxim Wealth Management enquiries@maximwm.co.uk

Do You Qualify For The New State Pension?

Tuesday, September 8th, 2015

qualifystateIf you reach state pension age on or after 6th April 2016 then you will come under the rules for the new state pension. Here is a quick guide to what that means in practice.

Out with the old and in with the New State Pension – What exactly changes?

Under current rules the state pension is divided into two parts. These are the basic state pension and the additional state pension.

The basic state pension is calculated based on your national insurance record. The additional state pension is calculated based on your earnings.

It is currently possible to opt out of making payments towards the additional state pension. This is known as “contracting out”.

The new state pension will combine both the basic and additional state pensions. This single-tier pension system will only be based on your national insurance record. As a result, it will cease to be possible to opt out of making payments towards the additional state pension. Therefore those who are currently doing so may see their national insurance contributions increased.

Will I qualify for the State Pension?

You will need 35 years of National Insurance contributions to qualify for the full new state pension. As a rule of thumb, you will need at least 10 years of NI contributions to qualify for any pension under the new rules.

There are, however, some exceptions to this. These are particularly likely to apply to married women or widows who chose to pay NI at a lower rate. If you are in this situation it is particularly worth checking whether you could qualify for the new state pension.

Those with more than the qualifying threshold but less than the maximum can expect to receive a partial new state pension. For example someone with 15 years of NI contributions will receive 15/35 of a full new state pension. Someone with 25 years will receive 25/35 of a new state pension and so on.It should be noted that the gov.uk website has a pension calculator which anyone can use. At current time it is still being updated to reflect the changes caused by the new state pension. It can still, however, offer users a ballpark idea of where they stand.

Take steps to deal with a shortfall in your pension

Under current rules, you can buy extra credits for the state pension. This option only applies to those who reach state pension age before 6th April 2016. In other words you need to reach state pension age before the new state pension scheme starts. You may choose to defer receiving your pension until after the new state pension scheme is launched. Even so, however, your claim for a pension will still be treated under the old rules.

For those who will be treated under the new rules, there is another option. This is to volunteer to pay “Class 3” National Insurance Contributions. Basically these are used to fill gaps in your NI record. For example if you went to work or study abroad for a while, this time might be “missing” from your NI history. Ideally you should look at this option in the context of your overall financial plans, including your retirement plans. In particular you should check if increasing your state pension might reduce your entitlement to other benefits.

You can also look at the option of deferring your state pension. Each year you defer adds 5.8% to the value of your state pension. While this is a considerable reduction from the 10.4% on offer at the moment, it may still be useful. One Final Point…

Remember you have to apply for pensions (both state and private). You should be contacted about this a few months before your retirement. If you are not, then you need to be proactive and contact your provider(s) yourself.

 

How Pension Changes Affect Everyone

Tuesday, August 11th, 2015

ChangesPensionIn the past three years there have been dramatic changes to the way people save for their pensions in the UK and the role that employers have in helping them to build up a pension pot.

The process of setting up new workplace pension schemes, called auto enrolment, has been ongoing since 2012 and employers of all sizes, from major corporations down to individuals with nannies or carers have to comply.

This blog is a quick guide to your rights and responsibilities if you are an individual employer and just employ one person to help you.

What Is Auto Enrolment?

The government’s rationale for the auto enrolment pension scheme is to plug the gap in pension provision.

Between 2010 and 2012 the Office of National Statistics calculated that 45 percent of men and 49 percent of women in the UK had no private pension provision at all.

Large companies were the first employers who were required to provide auto enrolled workplace pensions for their staff.

Between 2012 and 2014, large, medium and smaller businesses were added to the roll out of auto enrolment, and now in 2015 individuals with single employees are also obliged to provide pension cover.

Do I Need To Contribute Towards My Nanny’s Pension?

If you employ anyone over the age of 22 who is paid more than £10,000 you need to provide them with a pension. The Government has sent letters to those affected, but still, many people are unaware of their legal responsibilities.

Employers with 1-30 members of staff will go through the auto enrolment process over the next two years, and by October 2017 all employers will be expected to have made provision for their staff.

The amount that you will be obliged to pay in pension contributions for your employee(s) depends on the PAYE (pay as you earn) number that HMRC assigns to your employee(s).

What To Do

If you employ someone (a carer or nanny for example) and they do not have self employed status, you need to take action.

The government’s regulations are backed up by fines and penalties, so it is important to understand your responsibilities and comply with them by the deadline.

You might already have received a letter with the start date for your first payment into an employee’s pension scheme, most employers are given 18 months notice from the start of the scheme.

If you are unsure about when you need to start making payments, you can check with the Pensions Regulator.

How Much?

Initially, you will need to contribute one percent of the employee’s qualifying income. The employee will have to contribute 0.8 percent of their income and the government will add and additional 0.2 percent through tax relief.

Your contribution will rise to two percent in the second year of payments, but the qualifying income is not the employee’s entire salary.

It is any earnings between £5,824 and £42,385, therefore, if you pay an employee £10,000, you will only have to pay a pension on £4176 (10,000 – 5,824), meaning that your contributions will be £41.76 in the first year and £83.52 thereafter.

Getting Help

Many people find the idea of organising pension payments for others daunting and difficult, but fortunately there are numerous payroll companies who, for a small charge, can organise pension payments.

Even if you outsource the task of pensions payments to an agency, the cost will still be born by you.

 

How Divorce Could Affect Your Retirement Income

Friday, July 17th, 2015

DivorceRetirement“Breaking up is never easy” but sometimes it’s the best you can do. The Abba hit “Knowing Me, Knowing You” was released in 1976. A lot has changed since then, but breaking up still remains a painful and potentially expensive matter.

The Basics of Divorce

There are three steps to getting a divorce.

Step one is to file a divorce petition. This currently carries a fee of £410.

If your spouse accepts the divorce petition, you can then apply for a decree nisi. This is essentially a statement which confirms that it is legally acceptable to end the marriage. If your spouse refuses to accept the petition and you wish to proceed with the divorce, you will need to attend a court hearing. You may require legal representation for this. The cost of this will vary depending on your needs.

If a decree nisi is granted, there is a 6-week cooling off period before you can apply for a decree absolute. The decree absolute formally and finally ends the marriage.

The Basics of Divorce Finance

It is perfectly possible and legal for two parties to divide their assets between themselves amicably upon divorce. Whether or not this is advisable depends on a number of factors.

Even if the divorce is amicable, it may still be worth both parties taking legal advice. Divorce can be a highly emotional situation. Having professional legal advice can help to keep both people focused on the practicalities.

There are basically four points to consider when looking at finances during a divorce.

  1. The needs of children.
  2. The immediate needs of the divorcing parties.
  3. Longer-term maintenance.
  4. The division of assets and debts

Where there are children in a marriage their needs will always be the highest priority. After this, both couples will need sufficient funds to meet their current needs. How much this will be will depend on individual circumstances.

It may also be considered appropriate for one party to pay another maintenance over a longer-term period. This is particularly likely if there are children. Even without children, however, the lower-income partner may be entitled to maintenance.

The division of assets and debts covers basically everything else – including pension savings.

How to Protect Your Finances in Divorce

Moving on financially after divorce is a bit like unscrambling eggs. Fortunately it can be done. You will need to disentangle yourself and your credit record from your spouse as quickly and effectively as possible.

One of your first priorities should therefore be to set up a current account in your own name. You should also aim to close all joint accounts as soon as you can. Separate lives mean separate bank accounts.

If you have joint debt, then this also needs to be dealt with. In an ideal world, the debt would be repaid as part of the divorce process. For example, joint assets could be sold and the proceeds used to pay the debt.

In the real world, this may not be possible. For example if children are to stay in the family home, then the mortgage payments on it will still need to be met.

Therefore the division of debts needs to be looked at just as carefully as the division of assets.

Divorce and Retirement Planning

Divorce can have a significant impact on your financial health in your later years.

First of all your existing retirement savings may well need to be split with your ex spouse.

Secondly you are each going to need to run your own home. This means that you may have the initial expenses of renting or buying a new property. It also means that bills which may have been split by two people now need to be paid individually.

Will You Get The Full State Pension?

Tuesday, June 30th, 2015

fullpensionIn the Jane Austen novel Emma, the main character, Emma Woodhouse wittily describes the difference between being rich and being poor in old age.

Emma was published in 1815, but in principle her comments still hold today. Those with enough money can find their later years some of the most fulfilling of their lives. Those who are short of money can find them difficult and depressing.

A Brief History of the State Pension

The original state pension was introduced in 1909. Unsurprisingly it has seen quite a few changes since then.

Starting in April 2016 the existing state pension will be changed to the new state pension. As the new state pension is a means-tested benefit the amount received, if any, depends on your National Insurance contributions. You are likely to need at least 10 years’ worth of payments to claim any state pension. You will need at least 35 years’ worth of payments to claim the maximum amount.

How Do I Calculate My Pension?

The easiest way to calculate your state pension is to get an estimate from the gov.uk website. You can also apply for a National Insurance statement, which will show if there are gaps in your payment record. These may have been for perfectly legitimate reasons and be completely legal, but they may still impact your future pension.

If this is the case, you may be able to undo, or at least limit the damage, by making additional NI contributions.

You can also have NI contributions credited to you if you are in receipt of certain benefits. This could be particularly useful to people taking time out of work to raise children or to care for elderly relatives. Again, you can check if you are eligible for NI credits on the gov.uk website.

Can I Rely on the State Pension?

There are two parts to this question.

The first part is how likely it is that there will continue to be a state pension.

The second part is whether or not it will be enough to live on.

There are no guaranteed answers to either part of the question. It should, however, be possible to make some reasonable guesses about the second part.

In short, you need to think seriously about the sort of lifestyle you want to have in retirement. Then you need to start costing out your plans. Of course, some aspects of your life may be substantially cheaper in retirement. For example you may have paid off your mortgage. You may also be able to stop buying a season ticket to travel to work or to give up your car.

You may, however, get a surprise at just how many expenses you will still have in retirement. For example, if you own your own home you will still need to maintain it. That’s even before you start thinking about actually having fun in your retirement.

Voluntary Pension Contributions Could Make All The Difference

Under the auto-enrolment scheme, all eligible workers are automatically enrolled into a workplace pension scheme.

As a part of this scheme, workers make pension contributions automatically out of their wages. These contributions benefit from tax relief.

Employers also make contributions. There are therefore obvious benefits to being a part of a workplace pension scheme.

There is, however, the obvious drawback that pensions contributions reduce the amount of money a person has available in the here and now. As the scheme is entirely voluntary, everyone needs to take their own decision based on their own personal circumstances.

It is, however, arguably impossible to overstate the importance of having adequate retirement savings in place. Does anyone really want to spend their later years in poverty?

What Are The Alternatives To Annuities?

Friday, June 19th, 2015

FB - AnnuitiesIt seems that wherever one looks in the media at the moment a commentator, government minister or journalist is stepping forward to tell us how awful annuities are and posing the question: why are annuities so bad?

This, therefore is an important statement that should be absorbed before we continue; not all annuities are bad, some offer good value for money and many policy holders are happy with their choice of product.

Some savers with policies have been busy asking themselves ‘how much is my annuity worth’, and at least a few will have been pleasantly surprised by the answer. Others will be demanding to know ‘how do I sell my annuity?’

Ok. That’s that out of the way and the reason in this blog that there is a brief spell of objectivity is simple. If we are discussing the alternatives to annuities we should not start from the standpoint that they are all bad.

What do I need a policy to do?

For those of you who are asking: What is an annuity? It is a policy that used to be compulsory for most pensioners, sold by insurance companies, which guaranteed a fixed, monthly income for life in return for ones entire pension pot.

The role of any policy or plan that acts as an alternative to an annuity is simple, it has to last as long as you do.

An annuity will expire on the policy holder’s death, a factor that makes it attractive as it is a guaranteed income for life and will not run out before we head off to meet the great financial advisor in the sky.

Having the option of income drawdown presents savers with new options for finding more flexible retirement finance arrangements and one of the chief concerns for many is to limit the amount of tax liabilities on their lump sum.

On retirement, it was previously compulsory to buy a policy from an insurer unless one was lucky enough to have a final salary pension.

Now, as the restrictions have been removed savers have a number of choices when it comes to accessing their lump sum, a process which is referred to as ‘pension drawdown’.

Drawdown Options

Before April this year there were two main types of drawdown, capped and flexible. Capped drawdown meant that you could withdraw up to 150 percent of the amount per annum that you would have received each year if you had decided to purchase an annuity.

A flexible draw down enabled you to withdraw per year as much as you liked. There were more risks with the latter policy, but the risk was limited as your income from other sources needed to exceed £12,000 a year in order to be eligible for it.

Now the drawdown schemes have been simplified and replaced with flexi-access drawdown, which allows pensioners to take a quarter of their pot tax free in a lump sum withdrawal.

Subsequent withdrawals after the 25 percent tax free chunk are taxed at the standard income tax rates. If in a tax year you withdraw just £10,600 it will be tax free and the next £31,785 will be taxed at twenty percent.

If you’ve already been part of a capped or flexible drawdown plan, as of April 2016 these plans will convert to the new flexi-access scheme.

Getting advice

If, before now you’ve been wondering ‘what is an annuity’ or ‘how do I sell my annuity?’ it might be worth getting some professional advice on annuity policies, drawdown schemes or other alternatives.

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