Pension freedoms will help flexible planning

Pension freedoms will help flexible planning

The demand for lump sum withdrawals will be high following the abolition of the death tax and April’s pension freedoms, Kristina Volodeva has said.

Ms Volodeva, the associated director of tax at Baker Tilly, said: “The flexibility is definitely welcome news, as it will allow the individuals to decide what to do with their pensions without having the pressure on drawing the funds before they reach 75 to avoid the 55 per cent charge that currently applies for deaths after this age.”

She said the freedoms would give individuals scope to plan their income streams to mitigate tax liabilities.

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For example, a pensioner with a personal pension plan, a state pension and some investment income could decide how much to take out, so the total income stayed within the basic rate band, making lump sum withdrawals as appropriate.

Ms Volodeva added: “The balance of expenditure needs can be topped up with accumulated savings, preserving the pension fund to be passed on, with potentially no tax charges if executed properly.”

Under the old regime, pensioners would either be subject to an upfront 55 per cent tax charge for a lump sum withdrawal, or if they had bought an annuity, could be exposed to higher-rate tax, total income being dependent on income generated by the annuity.

Adviser View

Andrew Swallow, director of London-based Swallow Financial Planning, said: “The freedoms are an enlightened move because as a nation we are so under-pensioned. The changes allow people to nominate their funds to provide long-term security for their loved ones so I do not think on the back of the death tax ruling that the demand will be high.

“It is the duty of an adviser to enhance the well-being of their client, so it would be a sad indictment for the industry if they did not try to mitigate their tax liabilities and get maximum concessions for their clients.”