Q. I run my own company. I have a pension term assurance policy which is due to expire when I am 60 in a couple of months time. I expect to continue to work, possibly until I am 70. Can I do a replacement plan with the same tax benefits?
A. Pension Term Assurance is no longer available as a new contract. It would have offered you tax relief on the premiums, which made it an attractive option for many. However a disadvantage of such a plan is that any lump sum death benefit paid out would be added to any pension funds and tested against the Lifetime Allowance, which is now £1.25m, and any excess taxed at up to 55%. A good alternative for a senior employee is a “Relevant Life Policy”. This is a policy set up by an employer in a special trust for the benefit of the employee’s family. The employer will pay the premiums, but these are usually a business expense for the company, and are not treated as a benefit in kind for the employee. The key difference for those with large pension funds is that the lump sum death benefit is not tested against the Lifetime Allowance. I recommend you consult a Chartered Financial Planner who will be able to help you decide what level of cover would be appropriate.
Q. I know there is lots of talk of flexibility for pensions lately, but my pension fund is the only income I will have, other than my state pension, when I retire. Am I right in thinking that an annuity might still be appropriate for me.
A. Quite possibly. Whilst there is a great deal of negative press about annuities, they still are appropriate in many cases. They are still appropriate in cases where you require a fixed guaranteed income in retirement. Other flexible options come with investment risk and uncertainty, whereas annuities can provide you with peace of mind and a guaranteed income for life. I recommend you take advice from an independent financial adviser specialising in pensions, firstly to check whether an annuity would be the best option for you, and if so, to ensure they trawl the market place for you to make sure you get the best possible annuity rate taking into consideration all relevant factors including your health, previous occupations etc, which not all companies do.
Q. I am 59 and have received a pension sharing order from my ex husbands pension scheme which is worth about £40,000, which has yet to be implemented. I am still working earning about £20,000 a year and plan to carry on until 66 when I will get my State Pension. Will I be able to take all the pension fund I receive from the pension sharing order under the new pension freedoms from April?
A. In theory yes once the pension sharing order has been implemented you will be able to draw 25% of the fund on or after 6 April 2015 as a tax free lump sum. If you elect to take the rest, it will be taxable at your marginal rate. In other words if you took all the remaining £30,000 it would be added to the rest of your income in the 2015 / 2016 tax year so this would with your salary give you total income of about £50,000 so some would be taxable at 20% and the balance at 40%. You could avoid paying 40% tax by drawing the £30,000 down over 2 or more tax years. I suggest that you take Independent Financial Advice before making any decisions.
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
