Next month, the Government’s shake-up of the UK’s pension system will comes into effect. You may be familiar with these changes, however, according to research by Prudential, up to one in three people due to retire this year are unaware of the upcoming changes. We thought it would be useful to provide a brief outline of these developments and how they might affect you and your pension.
From next month, individuals with pensions will be given more flexibility with how they access their pensions upon retiring. Previously, you could take just 25% of the pension pot as a tax free lump sum and then with the remainder buy an annuity which gives a fixed income for life.
The new changes mean that those entering retirement can access the whole of the pension pot in one go.
So let’s say you have a £100,000 pension pot. You will still be able to take up to £25,000 (25%) as a tax-free lump sum, but you will then have the following options:
• Take out the remaining £75,000 immediately, or in lump sums, and pay income tax at your marginal rate – 20%, 40% or 45%.
• Buy an annuity with the £75,000.
• Leave the £75,000 invested and draw as much or as little as you want in income.
• Buy an annuity with part of your savings, leave the rest invested, or take it out your fund and spend it.
The Property Market
Property experts anticipate that the housing market will see a boost as a result of landlords choosing to use their pension fund to invest in property. According to research carried out by Direct Line for Business, some 32% of people aged 45 to 64 with a pension would consider investing in a buy to let as an alternative to the traditional pension plan. The rental income then becomes your pension income, often giving a higher yield than traditional annuities.
Investing in property has proved to be a generally secure and appreciating asset which can be passed onto your family upon death. Some forms of annuity mean that the pension payments cease when the recipient died so the value of the pension pot can be lost should you die within a few years of retiring.
Fairmont Spencer Property Search
When buying for investment, a calculated criteria is required. Whether you are investing for capital appreciation of income, our team will work with you on your detailed brief to source the best available property via the open market and also off market properties. Should you then require it, we can open up to you our extensive property network covering all aspects of the buying, to property management and maintenance, offering you a one stop shop.
For further information please visit us at www.fairmontspencer.co.uk