Navigating uncharted waters

The impact of further pension changes on the horizon from this April

Pensions have been transformed by the arrival of freedom reforms on 6 April 2015 which now give much greater flexibility over what you can do with your pension pot. The new freedoms mean you can enjoy far greater choice on how you spend and generate an income from your pensions, but with further changes on the horizon these are some of the key points you need to know.

State Pension

The new State Pension will be a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016. If you reach State Pension age on or after that date, you’ll get the new State Pension under the new rules.

The new State Pension is designed to be simpler. But there are some complicated changeover arrangements which you need to know about if you’ve already made contributions under the current system.

You’ll be able to get the new State Pension if you’re eligible and:

▪ A man born on or after 6 April 1951
▪ A woman born on or after 6 April 1953

If you reach State Pension age before 6 April 2016, you’ll get the State Pension under the current scheme instead.

You can still get a State Pension if you have other income such as a personal pension or a workplace pension.

How much you can receive

The full new State Pension will be starting at £155.65 per week. Your National Insurance record is used to calculate your new State Pension.

You’ll usually need ten qualifying years to get any new State Pension. The amount you receive can be higher or lower depending on your National Insurance record. It will only be higher if you have over a certain amount of Additional State Pension. You may have to pay tax on your State Pension.

Working after State Pension age

You don’t have to stop working when you reach State Pension age, but you’ll no longer have to pay National Insurance. You can also request flexible working arrangements.

Defer your new State Pension

You don’t have to claim the new State Pension as soon as you reach State Pension age. Deferring the new State Pension means that you may get extra State Pension when you do claim it. The extra amount is paid with your State Pension (for example, every four weeks) and may be taxable. After you claim, the extra amount you get because you deferred will usually increase each year.

What this means for your pension

Your State Pension will be lower if you’ve ever been contracted out of the Additional State Pension.

How this affects you depends on whether you reach State Pension age:

▪ Before 6 April 2016
▪ On or after 6 April 2016

Changes to contracting out from 6 April 2016

On 6 April 2016, the contracting-out rules will change so that if you’re currently contracted out*:

▪ You’ll no longer be contracted out
▪ You’ll pay more National Insurance (the standard amount of National Insurance)

*only applies to members of contracted out defined benefit pension schemes

Basic and Additional State Pension

If you reach State Pension age before 6 April 2016, you can apply for both:

▪ The basic State Pension
▪ The Additional State Pension

The basic State Pension isn’t affected by being contracted out. However, your Additional State Pension will be reduced according to how long you were contracted out.

You have a workplace, personal or stakeholder pension

If you were contracted out of the Additional State Pension in the past through a workplace, personal or stakeholder pension, you either:

▪ Paid lower National Insurance contributions
▪ Had some of your National Insurance contributions put towards your workplace, personal or stakeholder pension

Your starting amount for the new State Pension may include a deduction if you were contracted out in certain:

▪ Earnings-related pension schemes at work (for example, a final salary or career average pension) before 6 April 2016
▪ Workplace, personal or stakeholder pensions before 6 April 2012

You may not receive the full new State Pension when you reach State Pension age if you were contracted out.

Do you have the right retirement plans in place?

If you’re reaching retirement and need to make sure you have the right plans in place, the countdown is on. To review your situation, please contact Reeves Financial on 01403 333145 or email areeves@reevesfinancial.co.uk – we look forward to hearing from you.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

This is for your general information and use only and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. For Reeves Financial, published by Goldmine Media Limited, Basepoint Innovation Centre, 110 Butterfield, Great Marlings, Luton, Bedfordshire LU2 8DL Content copyright protected by Goldmine Media Limited 2016. Unauthorised duplication or distribution is strictly forbidden.