Pension freedoms
The Pension Freedoms were introduced in April 2015, marking one of the most radical changes to pensions in almost a century.
From the age of 55, savers now have complete freedom to draw as much, or as little, of their pension as they wish. You no longer have to buy an annuity to access your retirement savings. It is still possible to do so, but it is no longer mandatory.
Alongside making it easier to access your pension pot, the government has radically changed death benefits on personal pensions.
In the past, a ‘death tax’ of up to 55% was levied on the remaining pot of money. This has been scrapped, so pension pots can now be passed on tax-free to beneficiaries if the person dies before the age of 75. For those who pass away over the age of 75, the marginal tax rate of the beneficiaries will be applied.
Although the new rules have made pension saving more attractive, not enough people are saving into their pensions. A recent survey carried out by Chelsea found that a quarter of individuals invest less than 5% of their salary into their pension. Close to 65% of respondents were not investing anything into their pension at all.*
It shows that people are not prioritising pension saving. Some may be put off by expensive charges, while others may perceive them as too complex - preferring ISAs and savings accounts instead.
Prioritise
Whether you are saving your hard-earned cash into an ISA, putting it under your mattress or contributing to your pension, everyone needs to prioritise saving for retirement. The UK currently works on a “pay as you go” basis with the state pension. This means that the people working today are paying for those who are retired. With people living longer, this is likely to put the current system under strain.
Find out how to boost your pension savings by reading our article on the tax-free cash that is available as part of your pension.
Charges
There are charges associated with investing in funds, so make sure you understand how these charges stack up and the potential implications for your savings.
For example, you may find you have a pension from a previous which you no longer invest into. If the charges are high and the fund is not performing well, you may find you are losing money. Find out how to consolidate your pensions with Chelsea.
Confused by pensions?
If the topic of pension saving seems complex or intimidating - fear not, Chelsea is here to help. One question we are often asked is: “How much can I put into my pension this year?”. Click on the links below to find out more:
1. How much can I invest over my lifetime? The lifetime allowance
2. I am a basic rate tax payer/ I earn under £110,000 a year - The annual allowance
3. I am a higher rate tax payer/ I earn over £110,000 a year - The tapered allowance
4. I am in flexi-access drawdown - The money purchase annual allowace (MPAA)
Carry Forward
You may be able to utilise the Carry Forward rule, even with these new annual allowances.
The principle is fairly straightforward: if you have not used your full allowance in the past three years you could use Carry Forward to contribute more than the annual allowance in one tax year. You can find out more here.
Where to invest
If you feel it is a daunting task to select from the large number of funds available, take a look at the VT Chelsea Managed Funds.
If you are interested in opening a new pension and/or transferring, please complete our simple questionnaire and we will send you the relevant documentation.
Advice and guidance
Chelsea is an execution-only business and cannot give advice. If you feel you need advice on your pension, you should consult a financial adviser. Alternatively, the government has launched a free impartial guidance service called Pensionwise.
*Chelsea survey, July 2017, 76 respondents.