The thought of my pension is causing some tension
The other day I said to my husband “You look good…for your age”. Due to an inexplicable pause in the middle, this didn’t quite come across as the compliment I had intended. There are two relevant points here; none of us are getting any younger, and timing is everything!
There is never a bad time to think about pensions
There is never a bad time to think about pensions, but a lot of us find this particular area of our finances both daunting and frustrating. If you have a private scheme you probably pay a set amount in every month, but give it little thought throughout the year. It’s perhaps worrying to see a downturn in the valuation (a common occurrence of late with volatile markets!), and it can sometimes feel like you’re throwing money away. Even if you have what seems like a decent sized pot, the income forecast often seems disappointingly low. Perhaps because of this, some people choose to access their funds at the earliest opportunity, rather than wait to receive an annual income.
If you are concerned that your pension pot is underperforming or feel that your fund is being poorly managed, please contact us and we will be happy to advise you further.
Beth Meacham
Client Manager, Steve Pye & Co Chartered Accountants
It is possible to start withdrawing money from most personal pensions at the age of 55. With defined contribution pensions, 25% of each withdrawal is usually tax-free, and the tax you pay on the remainder depends on your other income in that particular tax year.
If you are thinking of extracting some or all of a private pension, I implore you to check the tax implications. Timing is so important; you could save literally thousands of pounds just by spreading a withdrawal over more than one tax year.
Pension withdrawals tend to be heavily taxed at source, and it is sometimes possible to claim a refund by submitting the appropriate form. But, please bear in mind it is only possible if the amount deducted is more than your expected tax liability for that particular tax year.
If you are some way from drawing your pension, you may find the following points helpful:
- For owner directors, it is often more tax efficient to pay into a pension through your company, due to the fact taking money out using dividends or wages to contribute to a private scheme will generally result in additional personal tax.
- If you are a higher-rate taxpayer contributing directly to a private pension, you need to actively claim the associated tax relief (through your tax return, or by contacting HMRC directly). If you are an employee paying at least 5% of your gross pay into a workplace pension, and you have been automatically enrolled, your employer is generally required to pay 3%.
- Private pensions tend to go up and down in value. Providing your retirement is not imminent, the report of a loss rather than gain for a particular period is not normally cause for panic, especially during times of instability.
