Q. I have been told it is now possible to access my personal pension fund as a lump sum. I am 52 and could do with the cash. How do I go about this?
A. There are two issues here. The Chancellor has announced a change in the rules from next April, which means that those over the age of 55 will legitimately be able to access their pension fund, subject to marginal rate tax on everything over the 25% tax-free lump sum. Apart from the obvious drawback that this leaves you without the income which would have been generated in later years, there will also be extra restrictions on the amount you can invest in pensions in the future. The other issue is that there are people out offering various schemes purporting to enable you to benefit from part of your fund prior to age 55. This is known as “Pension Liberation”, and is likely to incur significant tax charges, and is something that regulators and the government are trying to stamp down on. By the time the tax charges arise the promoter of the scheme will probably be long gone, often with the balance of your fund, and you will be left with no pension, a big tax bill, and no recourse to schemes such as the Financial Services Compensation Scheme, as these people are almost always unregulated. The answer is to ensure that you take advice from a properly regulated firm, which you can check out on a register on the Financial Conduct Authority website.
Q. My wife and I have built up quite substantial holdings in Cash Isa’s and Stocks & Shares Isa’s which I understand are now called New Isa’s. Our Will basically leaves all assets to the survivor on the first death and then to our children. What is the tax situation on death with our New Isa’s and can they be merely transferred to the survivor and thereafter to our children?
A. The simple answer is no. The New Isa (NISA) tax wrapper is removed as at the date of death so the investments that were within the tax efficient NISA will from that date become subject to income tax and possibly capital gains tax. Once probate has been obtained the assets previously held within the NISA can be transferred into the name of the survivor or failing them your children should they wish to retain the investments, or they could be sold and have the cash value paid out instead. As the NISA contribution limit for this tax year is now £15,000 the beneficiaries, if they have not already done a NISA in this tax year, could use the investments received up to this value to do what is known as “Bed & NISA. This is basically a sale and then an immediate transfer and purchase of the same funds within a NISA. This exercise could then be repeated each year so in effect they are gradually building back the assets into a tax efficient NISA wrapper.
Q. I spent last weekend with a former colleague. We both retired about 5 years ago having both worked for the same company on similar salaries for most of our working lives so therefore we have similar pensions. I was interested to hear how he invested his lump sum and the income he receives from it on a regular basis. He receives over 4% per annum and he said his capital has grown as well. I put my capital in a building society account withdrawing the interest monthly to supplement my pension and all I have seen is the interest rate and my investment income go down and currently I am getting only about 1% per annum after tax. The capital value remains the same though. He did say that his capital value and the income varies. Nevertheless he seems to be in a much better position than me with his invested capital. Can you explain why this might be?
A. It sounds as if your ex colleague has invested at least some of his capital into equity income and possibly fixed interest funds. The capital value of these investments can fall as well as rise as can the income that they generate. However the income currently being provided from such funds could be generating in excess of 4% per annum based on current yields. I expect that your ex colleague will have taken financial advice and he is accepting a degree of investment risk. If you want to consider such an investment strategy I would certainly suggest that you should take Independent Financial advice first as your capacity for loss may mean that your current strategy is actually the best thing for you.
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.
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