Pension Changes

Pension changes on the beach

There have been a number of changes announced this past year regarding pensions, we have pulled together a summary of the pension changes that are already in place or will be taking place in the coming months.

These changes do not include pension auto enrolment. Pension auto enrolment affects every business that employees at least one member of staff by 2018.

State-Pension top-up 

There is an opportunity for cash-rich pensioners to boost their state pension by making a lump sum, in the form of voluntary National Insurance Contributions before 6 April 2016, to receive up to an additional £1,300 a year, for life. The actual amount received depends on the pensioner’s age at the time they make the payment.

Who is eligible?

Anyone who is already receiving a state pension, or is due to receive one before 6 April 2016. That means that men are eligible if they were born before 6 April 1951. Women are eligible if they were born before 6 April 1953.

The idea is that such people should be compensated, as they will not be eligible for the new – and more generous – flat-rate state pension, which starts in April 2016.

Any current pensioner can benefit. Those who live for a long time will inevitably get better value out of the scheme than those who live for a short time.

How much money could I get?

The maximum you can get is £1,300 a year, or £25 a week. This will be paid on top of the current state pension of £115 a week. How much you pay for that income depends on your age. For example, if you are 65, that £25 income would cost you £22,250. That is a one-off payment, which you will not get back. However, if you are 80 it would only cost you £13,600. You can chose to buy a smaller amount.

Transferable Tax Allowance

One individual will be able to transfer £1,000 of their unused personal allowance to their spouse or civil partner. It will mean that the higher earner will be able to earn £1,000 more before they start paying income tax.

Greater freedom, more choice – PENSIONS

There are now a number of options from which you can choose to create your retirement income:

  • Take some or all of the money as cash – The first 25% of any money withdrawn from your total pension savings is tax free. The remaining 75% will be taxable as pension income at your highest marginal rate of tax. Depending on your earnings for the year in which you make your withdrawal(s) this could mean that you become a higher rate tax payer, and 40%, or even 45% in some cases, becomes payable on some of your pension withdrawal.
  • Invest some or all of the money into a drawdown arrangement – These are plans where your money is invested according to your needs and attitude to risk, and you are free to withdraw an income each year with no restrictions. Prior to the pension’s freedoms changes, there were limits on the amount that could be withdrawn, but this has now been removed for new drawdown plans.
  • Turn some or all of the money into an annuityAnnuities are still the only product that will offer a guaranteed income for life, ensuring you never run out of money. They have also had some of their restrictions removed, which means that you can now select a guarantee period up to 30 years, and the taxation payable on death benefits has been brought broadly into line with drawdown plans.

Other pension changes

From April 2016 the £40,000 annual allowance will be reduced if you have an income of over £150,000, including pension contributions.


GET IN TOUCH if you would like to know about these changes and how they affect you email; or call 0161 249 5040