Pensions face radical reform "Act Now - Or Lose Out On A-Day"

12 October 2005

Failure to take swift advice about the implications of ‘A Day’ –next April’s overhaul of pension legislation – could leave people seriously out of pocket. That’s the warning from pension’s expert Simon Ludden, Financial Planning Manager for Furley Page Solicitors.

On A-Day – April 6, 2006 - Britain’s pension system faces its most radical shake-up for 50 years.

The new rules will give millions of people the chance to boost their pensions. But many will miss out if they seek advice too late or, worse still, wrongly assume they are not affected and do nothing.

“Don’t delay and get caught up in a scramble”, warns Simon. “Most pension providers expect a last-minute rush and will operate on a first come, first served basis.”

He says there are six types of pension-holder who should seek advice as soon as possible:

Are you CLOSE TO RETIREMENT? If so, check whether it pays to defer some or all of your pension until after A-Day to take advantage of the new tax-free cash rules on protected rights pensions. You may also benefit from more flexible annuities.

Are you SEVENTY-FIVE? Currently anyone with pension funds still invested must purchase an annuity by the age of 75. A-Day will bring other options, one of which allows you to draw from the invested fund without buying an annuity. “This will not suit everyone but many could benefit,” says Simon.

Do you want to invest your pension funds in BUY-TO-LET property? A-Day allows this for the first time. But it should be approached with caution, warns Simon.

“It would take a considerable percentage of most people’s pension funds and should be regarded as a relatively high risk investment. Normally we recommend a more widely diversified investment portfolio. Also, property is not as liquid as many investments and may be difficult to sell when you retire and need pension income.”

Will your pension fund exceed £1.5 MILLION in value? If so you should consider whether ‘primary’ or ‘enhanced’ protection is right for you. Failure to register either protection could result in you paying 55% tax on part of your fund. Fortunately you have three years to register.

Do you have an EXECUTIVE Pension Plan or another scheme principally funded by the company? “If so, it may be in your interests to register these because many of the older schemes provide greater tax-free cash than the new ones, where it’s limited to 25% of the fund,” says Simon.

Do you want to BUY COMPANY PROPERTY with your pension fund? “Many firms find this a tax efficient method of running their company”, says Simon. “But they need to act NOW because A-Day will restrict the ability of pension funds to borrow to buy company property in general. However, the new rules will – for the first time - allow the use of pension funds to buy property that the company itself already owns.”
 

For further information contact Simon Ludden, Financial Planning Manager, Furley Page Solicitors on 01227 763939 or email…

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