Springfords LLP blog

Some news, views and comments about everything and anything, relevant and irreverent.

Pensions Tax Trap

05 September 2016

Far from being a freeway to an early retirement, the legislation allowing early drawdown of personal pensions is proving a bumpy ride for baby boomers hoping to make tracks on their new lease of work-free life.

The media has started to fill up with stories of people unlocking the box to their pensions and not only finding Pandora waiting on the inside. Out she flies, in the unpleasant form of an unexpected tax bill, and a retinue of nasty costs too.

Citizens Advice, the independent consumer champion, says that it’s not just potential tax costs, but also the unexpected potential for reductions in welfare payments that has caught many people out. Put that together with diminishing funds and shrinking returns, and the hard shoulder of life beckons all too soon.

Recently interviewed after compiling a far-reaching survey, Gillian Guy, the CA chief executive said: "Pension freedoms are popular with consumers but some people are experiencing unexpected losses."

HMRC says around 232,000 people have made use of the new pension rules so far. Not all of them have bought Lamborghinis, but a significant number have found themselves picking up an unwelcome ticket in the form of a tax demand.

Given that the shake up has been widely described as the most radical change ever to the pension landscape, it’s no wonder that when faced with the subtle but significant differences between defined contribution, defined benefit, and final salary or career average indices, many people, brought up in the freewheeling sixties and seventies are just choosing to take the money and run.

Springfords can help with the tax aspects of pension planning. Before taking any major financial steps, we always recommend that you talk to us. Anything from an informal chat to a sit-down consultation, we’re happy to help.

According to that report by Citizens Advice, around 20,000 people are already facing unexpected tax issues and about half as many again have found their benefits affected too. The significant changes to pension regulations are tempting many people to access their retirement savings early. The Government offers general free advice via its Pension Wise guidance service. It’s a good start, and when you’re ready, we’ll be here to do what we do best - offer the best personalised tax advice. Make an appointment and come visit us anytime. It’s a good opportunity to take the new car out for a spin. Careful though with the Lambo - our kerbs are quite high.

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springfords blog

Some news, views and comments about everything and anything, relevant and irreverent.

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