Pensions advice

Mary is able to assist with retirement planning and in particular to provide advice on complicated matters involving pensions. Mary is able to provide it either to the client directly or through having your independent financial adviser contact me.

It is important to ensure that you are able to take your pension pot in the most tax-efficient way possible. This could be through taking retirement income or through getting a lump sum payment.

On this page, I will go through some of the basics on pensions advice and some assorted questions which you may have. Please keep an eye on my blog posts on pensions.

Types of Pension

At its most basic (as defined for UK tax purposes), a pension scheme is a scheme or other arrangement that can provide benefits to a person/ in respect of a person in the following circumstances – retirement, death, reaching a particular age, serious ill-health or incapacity, or similar circumstances.

For UK tax purposes, there is a distinction of treatment between two types of pension scheme: registered pension schemes (being those registered under Chapter 2 Part 4 FA 2004 and unregistered pension schemes. There are numerous types of unregistered pension scheme including, for examples, employer financed retirement benefit schemes (EFRBS) and overseas pension schemes.

It is of key importance that the type of scheme be established early on as the tax consequences that follow will vary depending upon that.

State Pension

A state pension is a pension payment from the government. This can be claimed once you are state pension age. You will want to make sure you know when you will reach state pension age (in the UK there is not the default retirement age so you can use this calculator: https://www.gov.uk/state-pension-age).

For full advice on a state pension, it is usually possible to use citizens advice or the pensions advisory service. Information regarding a state pension is usually easy to find out.

Workplace Pension

In addition to a state pension, you may also consider enrolling in a workplace pension. This will be a pension operated through your employer. Usually they will make contributions through deducting from your salary.

If you have a straightforward query regarding your retirement savings then you can consider using pension wise. The government offers free pension advice through Pension Wise: see Pension Wise: free pension guidance | MoneyHelper.

I would not recommend using that website if you have a query that is slightly more complicated than just your most basic pension query. The pension advisory service provided by the government is unlikely to be able to give you all the options available – particularly if your pension has any international element. In those circumstances, it would be better to get advice on your pension plan options to be able to make the most of your money.

Pension Taxation

The taxation of pensions is very complex. You will want to know the earliest age that you can take your money out of your pension pot. You will want to know whether it is more efficient to take it as a regular income or as a lump sum. You will want to avoid scams and receive advice that can tell you all of your options. Finally, you will want advice on what options you have on what pension plans are available for moving your pension scheme if it is not working for you.

Mary has experience advising on all areas of pensions. In particular she can assist in circumstances where you want to know what pension options are available to allow you to save money and take your pension out more tax efficiently depending on your particular circumstances.

The taxation of pensions can be broken down to essentially three phases: the contribution phase, the growth phase and the taking of benefits phase.

The contribution phase is when you are making contributions. There will be annual limits on the amount that can be contributed tax free. Either you will be making contributions though more usually your employer will make the contributions. If you are self-employed and want to set up a personal pension to make provision for your retirement, you will want to know what options there are available and how to do so in a tax efficient way. There are important limits of which you will want to be aware to ensure you don’t accidentally find yourself subject to unexpected tax charges.

The growth phase is where the monies are in a pension pot and usually is held by a financial adviser in various investment funds. This stage is usually of a lesser concern for most individuals who have pension funds, but if a choice is made to, for example, move from one pension to a different pension, then it will be necessary to consider whether you may then be subject to taxation during the growth phase.

Finally, the most important phase for almost everyone will be the taking benefits phase. Mary has extensive experience in explaining to people their various pension options including whether it makes sense to move from one pension provider to another based on the person’s financial situation. There are many taxation provisions (which can be quite penal) so it is of paramount importance to ensure that your pension savings aren’t wasted on unnecessary tax charges.

Most people will want to take a benefit from their pension pot in the form of a regular retirement income. However, it is worth considering whether taking a benefit in the form of a lump sum would be more tax efficient.

Here are some example of circumstances Mary has had experience advising on.

UK resident and domiciled individual with a UK based pension

The most typical example of a pension is where you have your individual who has worked in the UK their whole life. They have only ever been UK resident and there is no international element to their pension. In these circumstances, the individual will likely have access to a workplace pension and will want to know how they can take that money out most efficiently.

Some key points to bear in mind if these are your circumstances:

The key age for UK pension taxation purposes is now 55. At this point there are options available to you to drawdown from your retirement savings.
In deciding how to draw down (assuming you are in a registered pension scheme which will normally be that case for UK based pension schemes), you have the following options:
taking a lifetime annuity
designating some or all of the money purchase funds to provide a drawdown pension
a scheme pension
taking an uncrystallised funds pension lump sum.
For inheritance tax purposes, the key age is 75 years old. If the individual dies before reaching 75 then there is no limit on the amount of pension that can be paid to a dependent beneficiary. If the individual dies after the age of 75 then there are limits to bear in mind.

Usually there are not many options to avoid taxation in these circumstance but there is opportunity for things to go wrong when you draw down your pension. You will want to avoid unauthorised payments and ensure that you get the maximum amount you are able to take tax free.

UK resident and domiciled individual with a foreign pension

There are numerous different ways that an individual could end up with a foreign pension despite being currently UK resident and domiciled. This could be because they set up a personal pension that is based in an offshore jurisdiction or because they had an employer who contributed to a pension which is overseas or alternatively because they themselves were based overseas and their employer contributed to an overseas pension.

If you find yourself in this situation, then there may be different options available to you to allow you to take benefits from your pension in a tax efficient way. If you have been a member of a pension scheme for an extended period (especially if you built up rights to that pension before 2011 or 2006) then you may be in a position to transfer your pension so that you are able to take it out with more beneficial tax consequences.

You may also be able to change pension providers such that you are able to take your pension out with more flexibility.

If you find yourself in this scenario, then it would be worth getting pension advice or financial advice to ensure that you are fully aware of your retirement options.

Whilst Mary cannot provide financial advice, she is able to advise on the tax consequences of your own pension plan.

Non-UK resident or domiciled with a pension with a UK connection

Non-UK resident individuals with personal pensions will want to be aware that there is still a risk of UK taxation. If you are non-resident, particularly if you are temporarily non-resident, you will want to ensure that you are fully aware of the tax consequences that will flow from your personal or workplace pension.

The rules in this area are complex and as such, it is easy to make mistakes and ultimately find you are paying unnecessary tax on your pension pot.

Whether you are the pension holder themself or a financial adviser, getting pension advice is strongly recommended if you are non-resident but have a pension with a UK connection.

More Information

For more information the tax consequences of your pension or for more pensions advice, please contact Mary Ashley.

Pensions Advice