April marks overhaul of UK pension system – what you need to know.
There is an overhaul of the pension system in the UK which comes into effect next month, April 2015. There have been several key points to George Osborne’s plans announced in the past year, and this article will outline some of the aspects that will affect you and me.
In the 2014 budget George Osborne revolutionised the way pensions work by, in a way, turning pension pots into a kind of bank account that can be withdrawn from at any time. He’s managed to do this by abolishing the 55% tax rate that previously faced when taking more than we should from our pension. His closest staffers have been referring to the policy as radical and clever, but until it is rolled out in full there’s no way to know if it will be a positive or negative change to millions of people.
The parts of the reform that will affect us most noticeably are probably the tax changes:
- Savers can pass on what’s left of their pension pots to loved ones without being taxed after death, as opposed to the 55% tax that currently stands
- Husbands and wives whose partners pass away before the age of 75 will get income from their spouse’s pension tax-free.
Financial services like Nutmeg’s newly launched personal pensions are proving popular, and this proves that the subject is at the forefront of many people’s minds at times of economic uncertainty such as these. Treasury forecasts assume that the spending will be extreme, but remember these numbers aren’t set in stone. They believe that if cash can be pulled out of their pension at a lower rate of tax, it will bring in £320 million more in tax, with this number rising to a staggering £1.2 billion in 2018-19. These figures on the surface look very promising, but whether s system works for everybody cannot just be judged in terms of how much tax the treasury is receiving.
With pension pots functioning as a kind of bank account, with the money available to access whenever you desire from the age of 55. There are still kinks in the system to be worked out, and until the plans come into place nobody will truly know how the new system revamp will work out. There could also be disagreements with pension providers, perhaps leading to extra costs, fees or charges.
Remember to be careful with your pensions, as their importance for your general wellbeing as an older citizen is incalculable. In my opinion, unless you’ve got a very healthy amount of money saved up it’s best to treat your pension like usual and withdraw smaller amounts across a long period of time. There’s a chance we may see examples of individuals over the next 10 years who have spent too much, too soon and are left over reliant on others for the final years of their life. There’s no certainty of this happening, but it’s better to be safe than sorry as withdrawing a large chunk of your pension is a huge gamble.