Friday, 27 March 2015

Blow your pension and lose benefits

Here's the Department for Work and Pensions warning about squandering your pension savings and then expecting to be able to fall back on state benefits:

“Means-tested benefits take into account how much income and capital a household has. 

“And if people are found to have deliberately spent their pension in order to get means-tested benefits, then their benefit is reduced accordingly.”

It's understood that if money is released from a pension pot and then spent, these "deprivation rules" may apply regardless of age.

·         Benefits affected include:
·         Pension Credit
·         Housing Benefit
·         Jobseeker’s Allowance (income based)
·         Employment and Support Allowance (income related)
·         Income Support
·         Universal Credit 

Tuesday, 24 March 2015

Pension help phone number

The Chancellor has announced that the telephone number for free guidance on the new pension freedoms is operational from today.

The freedoms, which start on the 6th April, enable savers to dip into their pension pots as they wish from 55 rather than having to use the money to buy a pension annuity.

They can ring the number, 030 0330 1001, between 8am and 10pm to book a guidance session.

Phone sessions will happen from tomorrow, with face-to-face help starting on the Tuesday after Easter, once the reforms have been launched.

45 minutes is being allocated for each guidance session over the phone.

10,000 savers have already pre-registered requests to get help with the freedoms.

Here's the Pension Wise page.

Wednesday, 18 March 2015

Tax free savings

From Budget document...

In a radical reform to the savings tax system, a new Personal Savings Allowance will be created from April 2016, exempting the first £1,000 of savings income from any tax for basic rate taxpayers and the first £500 for higher rate taxpayers, saving up to £200 off an annual tax bill. This will not apply to additional rate taxpayers.

From Treasury:
Banks will stop deducting 20% tax on people’s savings income. 95% of taxpayers (28m people) will benefit. 17m people will be completely removed from tax on their savings income from April 2016.

It's from April 2016

Monday, 16 March 2015

Beware of tax if you free up your pension

How much tax will you pay on your pension?

Tax is a crucial consideration with the pension freedoms being launched in April and the latest idea -- cashing in your annuity -- which might arrive in 2016.

The tax penalty of 55% on taking out your money is being removed, but there will still be tax: 25% will be tax free, then you pay income tax at 20%, 40% or 45%, depending on which threshold you smash through.

It's a point which may have been overlooked in the excitement over the cash-in-your-annuity idea.

A typical pension pot of £20,000 to £30,000 buys a very small annuity, perhaps around £25 a week.

However, for many pensioners, that money could be free of tax, because their incomes will be less than the personal allowance, the amount of income you are allowed to have before income tax kicks in.

On the other hand, taking the money as a cash lump sum would push many of them into 20% tax and there's no tax-free element.

People on slightly higher incomes will need to worry about the 40% tax threshold.

So it will be very important to calculate what might happen to your tax bill, even though you might be very unhappy about the size of your annuity.