Q. I am 59, and I am considering my retirement options. I have built up a personal pension fund of £400,000 and intend to retire from my job this time next year. I hope to carry on working after retirement, and have heard about the new flexible retirement rules which I might be able to take advantage of. Can you tell me more?
A. Many more people are carrying on working after retiring from their “main career”, and therefore looking for greater flexibility to draw upon their pension to top up their earnings if necessary, or switch the income off if it is not needed, leaving more in for later in life. The exact rules after April are still to be confirmed in legislation, but it seems very likely now that you will be able to dip into your fund as much as you like, but potentially at the cost of a reduction in the level of future contributions you can make with tax relief from £40,000 to £10,000pa. It may be worth your while considering the options before April, as the flexibility you require may already be available, without the reduction in future contributions. As ever, the rules have not been simplified, and I would suggest taking advice on your specific situation and retirement objectives in order to find the solution which best suits you. A Chartered Financial Planner specialising in pensions will be able to guide you through the retirement process.
Q. I pay into a personal pension plan and I understand I get tax relief automatically. A friend of mine has suggested that, as I am a higher rate tax payer, I may be able to get more tax relief. Is this possible?
A. Contributions to personal pension plans are paid net of basic rate tax, with the basic rate of tax being credited to you by your pension provider. Higher rate tax relief needs to be claimed by you. You should request a Personal Pension Contribution Certificate (PPCC) from your pension provider and write to your tax office enclosing a copy of this and they should alter your tax code to provide you with the further tax relief you are eligible for. If you have been a higher rate tax payer for some years, and have paid personal pension contributions during these years, you should ask for a PPCC going back four years, and by providing this information to HMRC you may be eligible for a tax refund.
Q. I currently have a discounted variable rate mortgage which is affordable at the present interest rate I am paying. This deal is coming to an end soon so I need to look at alternatives. Any significant increase in mortgage rates could cause me some financial difficulties. I am therefore concerned about the possibility of interest rates rising soon and wonder if I should switch to a fixed rate mortgage?
A. Recent comments from Mark Carney, the Governor of the Bank of England, regarding the likelihood of interest rate rises in the UK have caused some concern in the market. One problem he has is that there are still high levels of household debt in the UK and therefore any significant interest rate rises could in turn push an increased number of people of people over the edge and into default on their mortgages. A fixed rate mortgage may cost a little bit more now but can give you peace of mind in the knowledge of whatever happens to interest rates during the period that you elect to fix your mortgage rate for you will know that your mortgage payments during that period are not going to rise regardless of how high interest rates may go. Interestingly in the UK we have about 67% of household mortgages that are on a variable rate compared to about 14% in the USA. Also in the UK of those going for a fixed rate mortgage they are typically 5 year fixes compared to 30 year fixes in the USA. I suggest that before you do anything you should talk to an independent mortgage adviser who will be able to help you to find the most suitable mortgage.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
