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Changes to Pensions etc

Posted by kingly - Created: 4 years ago
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10 replies (Showing replies: 1 to 10)

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Posted by Grebo-210000 - 4 years ago

Hi  steverockers. 

We are talking about 2 different things. 

The changes taking place in April 2015 mean that if you have a pension pot, ie not an annuity then it has a value. Say £100,000. Under the new rules you will be able to take 25% tax free & then draw the balance down as a lump sum or take regular income from the fund when ever you like. Any drawings taken would be added to your income for the year & you would be taxed accordingly. 20%,40% or even 45% depending on your total income. The fund remains invested  

You can not do this if you have already purchased an annuity (pension income for life)

what the Chancellor MAY announce tomorrow is that a lot of people who have already taken an annuity can't benefit from the new rules. Lots of people have taken annuities with lousy rates. Once an annuity is taken you no longer have a fund but you do have a guaranteed income for life.

So I think the proposed change referred to in the press will enable people who already have an annuity to in effect sell it to the highest bidder. This will create a traded annuity market. 

So if you have a pension income (not a fund as it has no further value to you once an annuity is taken) say of £10,000 per annum the investor/pension company would calculate how long they think you will live, say in this instance 10 years. If they buy your annuity from you they would get 10 years income (£100,000) before you die. When you die the income will of course stop  

So make the calculation your self. How much would you pay for an investment that is a gamble on how long you will live. Maybe £50 - £60,000 ? If you live 20 years then they have £200,000 for an investment of say £60,000.

if you only live another 2 years it has cost them £60,000 for a £20,000 return  

This was in answer to the op question nothing to do with the new rules taking place in April  

Hope this clarifies for you  

 

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Posted by steverockers-392585 - 4 years ago

Grebo - I don' quite understand your statement  'They would keep the annual income from it until you die'.  Is that really correct ?  If it is, then how can you convert what was your annuity to cash ?  I didn't think that there will be any limit on the cash value that you are allowed to cash in so, if you draw everything down, how can they keep the income as there is no capital left.

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Posted by tinabee - 4 years ago

The new pensions rules apply to all private sector pensions (personal and workplace) but not government service pensions.

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Posted by Grebo-210000 - 4 years ago

Don't be under any illusion that you would get £40,000 for your annuity. You would have to sell it to an insurance company or annuity dealer. They wouldn't give you £40,000. 

They would keep the annual income from it until you die. So they will work out your life expectancy & offer accordingly so that they anticipate a profit. If you do sell it & die before they think you will then your family wins & they lose. The other way round they win.

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Posted by steverockers-392585 - 4 years ago

It is going to be a difficult decision for some people.  I had to convert to an annity 3 years ago on reaching 75.  I had a pension pot of around £40,000 and now get an income of about £4000 per year.  Of course the down side is that the money is gone when I pop my clogs so the kids don't get any of it !  If I were to take the cash, if the chancellor says I can in the budget, then I would get a nice lump sum but virtually no income as 2.5% (if i'm lucky) of £40,000 is only £1000 so I would need to top up from the capital.  To take an extra £3000 per year would mean that everything would be gone if  live another 12 years or so and then I would be in the poo !  Also, drawing down from the capital would incur income tax charges from les impots.  At the moment it looks as though, for me, I am better staying where I am.

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Posted by grannydot-403561 - 4 years ago

.....and then what do you live off, when it is all gone on a new car, a new this and a new that.  I do hope only sensible people take this " take it all" option.  That is fine is for some reason you know you are not going to live very long. You can then have the best for the time you have left. But then if you have a partner, how do they they, because their widows part  of that pension will be gone. 

Not meant to sound miserable but just another side of it. There are many pitfalls, and many good points.

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Posted by Grebo-210000 - 4 years ago

I think the op may have heard the following. 

In addition to the pension changes already announced to take effect in April this year, Mr Osbourne in his budget this week is predicted to announce that those who have already purchased an annuity MAY be able to exchange it for a cash sum with their provider in the future. 

Hope this helps. 

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Posted by firestarter-435430 - 4 years ago

Found out from my accountant here that even though you will (probably) be able to claim back UK tax on this if you are resident in France it will then be subject to tax here and social charges which will equate to the same if not more than you would pay in the UK.  Also, if you only take the 25% tax free lump sum it is also taxable here.  Forewarned is forearmed!

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Posted by Tryval - 4 years ago

Some interesting replys to the op, unlike the UK tele watcher, we don,t all have, or want UK tv 24/7, thanks for an interesting post 'Kingly'

Regards, Bill.

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Posted by brionybob - 4 years ago

The first 25% is tax free as now, but any further withdrawal is taxed, so not quite as good as first view. This is only private pensions, not pensions through your job.