Newly introduced pension freedoms

BKL tax partner David Whiscombe comments via the UK200Group on the introduction of new pension freedoms.

 

‘On Monday (6 April 2015) thousands of savers over the age of 55 were granted new powers to access their entire pension pot for the first time.

Under the new rules, individuals over the age of 55 can now draw down up to 25 per cent of their pension savings tax-free and can withdraw the other 75 per cent at their marginal income tax rate.

In the run up to the new pension freedoms there has been a long debate about whether these new changes could lead to people mismanaging their finances and losing their financial security in old age, by squandering their pension pot.

David Whiscombe, director of tax at UK200Group member firm BKL, said:’

“However tempting that prospect may seem, it’s not a decision to be taken lightly. Quite apart from the strong likelihood of battalions of dubious “financial advisers” picking up the scent of gullible investors with new-found wealth, like wasps at a picnic, there are tax issues to consider. They are three-fold.

“Firstly, 75 per cent of the amount withdrawn will itself be subjected to income tax. And, of course, if a large sump sum is drawn out it is likely that all or most of it will be taxed at the very highest rate of income tax.

“Secondly, should you choose to invest all or part of the lump sum (rumour has it that many will be looking at buy-to-let property), the income and gains arising from the investment will be fully chargeable to tax: contrast that with tax-free growth in a pension fund.

“Thirdly, when the inevitable happens, any value represented by the investment will form part of your estate for inheritance tax (IHT) purposes: again, to be contrasted with the scope for passing the benefit of a pension fund free of IHT.

“We don’t say that drawing out the whole fund will never be the right thing to do.  But it warrants a great degree of careful consideration.”

 

The article is available on the UK200Group website.

NICOLA HALL

BILSHAN MENSAH

Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

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While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.

ELANA DIMMER

Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.

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