We know you want to make the most of your retirement. Whether it’s spending precious time with your friends and family, travelling to far‐flung destinations, or pursuing a new and exciting hobby, your pension is a key piece of the puzzle.
And with so much changing over the last year, it can be hard to keep track of everything pension‐related.
New freedom reforms were introduced on the 6th of April 2015, meaning you can now enjoy a great deal more flexibility and choice with regards to how you spend and generate an income from your pensions.
Yet with further changes on the horizon, we’ve outlined some of the key points you’ll need to know as we move into the new tax year.
A Simpler State Pension
The first change to look out for is the New State Pension. This will be a regular payment from the Government that you’ll be eligible to claim if you reach State Pension age on or after the 6th of April 2016.
It’s 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 the 6th of April 1951
- A woman born on or after the 6th of April 1953
If you reach State Pension age before the 6th of April 2016, you’ll get the State Pension under the current scheme instead.
Note: You can still receive a State Pension if you have other income such as a personal pension or a workplace pension.
How much can you receive?
The full New State Pension will start 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.
Note: You may have to pay tax on your State Pension. Still not sure? Speak with ad+ today .
Are you working after State Pension age?
You may still need to work after State Pension age, or you may just love what you do! Either way, you don’t h ave to stop working when you reach State Pension age, but you’ll be glad to know you no longer have to pay National Insurance. You can also request flexible working arrangements.
Can you defer your New State Pension?
Yes, absolutely. 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 does this mean 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 the 6th of 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)
*This only applies to members of contracted‐out defined benefit pension schemes.
The Basic and Additional State Pension
If you reach State Pension age before the 6th of 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.
Do 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 therefore 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 the 6th of April 2016
- Workplace, personal or stakeholder pensions before the 6th of April 2012
Note: You may not receive the full New State Pension when you reach State Pension age if you were contracted‐out. Need some advice? Speak with ad+ today.
The Lifetime Allowance
The maximum amount you can build up in your pension pot over the course of your lifetime is called the lifetime allowance. This will be reduced to £1 million from £1.25 million from the 6th of April 2016.
It’s worth noting that this is the third reduction in four years, leaving the allowance at less than half the level originally intended, when it was to be inflation‐linked from 2011/12 onwards.
The lifetime allowance reduction means you need to plan v ery carefully. After April 2016, anyone who breaks through the £1 million threshold may be liable to 5 5% tax on any amount over the limit if the excess is taken as a lump sum. If any of the excess is instead taken as income, the tax charge is 25%, although the income itself will still be subject to Income Tax at the recipient’s marginal rate.
If you’d like to start planning ahead, speak with one of our expert tax advisors today by clicking here.
The Annual Allowance
The Annual Allowance is the amount you can pay into a pension fund each year and receive tax relief.
From the 6th of April 2016, the Annual Allowance will be tapered from £40,000 for those with earnings of £150,000 or less down to £10,000 for those with income of £210,000 or more.
For this purpose, income isn’t just comprised of your salary. Rather, it is ‘adjusted’ to ensure it includes any personal and employer pension contributions or any other income, including savings, bonuses or even a buy‐to‐let property rental.
This will undoubtedly take many more people into a higher earnings bracket.
The annual allowance will reduce by £1 for each £2 of adjusted income above £150,000 until it reaches £10,000.
If applicable, you could reduce your tax liability by carrying forward any leftover pension allowance from previous years, or by taking advantage of the transitional Pension Input Period (PIP), which will provide the opportunity of making a total payment of up to £80,000 into your pension pot this year .
Would you like more information or advice regarding the changes to the Annual Allowance, or anything else we’ve discussed in this article? Speak to ad+ today.