The latest Clay Shaw Butler Money Matters column from the Carmarthenshire Herald
The latest Clay Shaw Butler Money Matters column from the Carmarthenshire Herald.
By Mark Jones, director of Carmarthen-based Clay Shaw Butler chartered accountants and business consultants.
The importance of pensions is such that it is worth giving the issue plenty of prominence in this regular Herald Money Matters column.
Over the last couple of weeks, we have discussed auto enrolment for employers and given some advice on watching out for pension scammers.
This week, it is time to focus on what you can do with your pension pot.
You can usually take 25% of your defined contribution pension pot tax free and then choose from a range of options.
If you take 25% tax free, you must make a decision on the remaining 75% within six months - you can’t then leave it untouched.
You have six options -
Leave your whole pot untouched
You don’t have to start taking money from your pension pot when you reach your ‘selected retirement age’. You can leave your money invested in your pot until you need it.
Guaranteed income (annuity)
You use your pot to buy an insurance policy that guarantees you an income for the rest of your life - no matter how long you live.
Your pot is invested to give you a regular income. You decide how much to take out and when, and how long you want it to last.
Take cash in chunks
You can take smaller sums of money from your pot until you run out.
Take your whole pot in one go
You can cash in your entire pot. One quarter is tax free, the rest is taxable.
Mix your options
You can mix different options. Usually, you would need a bigger pot to do this.
Let’s focus on leaving your pot untouched . . .
You don’t have to start taking money from your pension pot when you reach your ‘selected retirement age’ (the pension age you agreed with your provider).
You can leave the money invested, eg while you’re working.
Your pension pot could grow further and give you a larger amount of money to last for a shorter amount of time.
As long as your money stays in your pension pot you don’t pay tax on it.
You can still pay into it up to your annual allowance, provided you haven’t exceeded your lifetime allowance, which reduces to £1million from next year. You could fix it then at £1.25million but you won’t be allowed to make further contributions. A pot in excess of the Lifetime allowance attracts tax on the excess at 25% taxable on the fund or 55% if you draw it out .For a full detailed explanation speak with your IFA or let us, at Clay Shaw Butler, introduce you to an Independent Final Advisor
Whatever money you leave in your pension pot you can pass on tax free if you die before the age of 75.
Your provider may charge you administration fees for managing the fund.
As with every investment the value of your pot could go up or down.
Usually the earliest you can start taking money from your pot is 55.
Check with your provider.
In some circumstances you can take your pension earlier.
Your next steps
If you want to leave your pot untouched for a while, ask your pension provider the following questions:
- What are your charges for leaving my money in longer?
- Do I have to take the money by a certain date and are there penalty charges if I don’t?
- How much is the pot likely to grow each year?
- How is the money invested and can I change this if I want?
- How much can I still pay in?
- Does my pot have any special arrangements attached to it that could mean I get a better deal, eg a guaranteed value at a certain time?
The Government’s Pension Wise website is a good place for advice on pensions –
You can find out more about money matters on the new-look Clay Shaw Butler website (under our news for business section) -
We have a strong and experienced team with great local knowledge all geared-up to helping you get the very best from your finances – whether that is as an individual or as a business.
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