Ci­ti­zen’s Ad­vice

...with Nigel Mor­gan

Macclesfield Express - - YOUR PICTURES -

THE new rules re­gard­ing pen­sions have in­tro­duced a num­ber of con­fus­ing def­i­ni­tions into the pub­lic do­main.

Pen­sions can feel like a for­eign lan­guage for many peo­ple. Terms like flexi-ac­cess draw­down and un­crys­tallised funds pen­sion lump sum are mys­ti­fy­ing con­sumers, but we also find peo­ple mis­in­ter­pret­ing seem­ingly more straight­for­ward pen­sions terms. A small mis­un­der­stand­ing about your pen­sion can lead to a lot of con­fu­sion, and mean some con­sumers don’t get the best op­tion for them.

Cit­i­zens Ad­vice, who now de­liver the face-to­face chan­nel of Pen­sion Wise, says peo­ple would find it eas­ier to un­der­stand their pen­sions if the in­dus­try used sim­ple, stan­dard lan­guage to de­scribe their prod­ucts.

Some peo­ple are also un­clear about terms, which puts them at risk of miss­ing out on the best pen­sion op­tions for them. We have dealt with cases where con­sumers wrongly be­lieved that their ‘se­lected re­tire­ment date’ was set in stone as the date they could ac­cess their pen­sion, when in fact they could have ac­cessed their sav­ings ahead of this date.

To help peo­ple get to grips with their pen­sion, we have iden­ti­fied the pen­sions jar­gon which peo­ple find most per­plex­ing and have ex­plained them in sim­ple terms in­clud­ing: ●● Un­crys­tallised funds pen­sion lump sum (UFPLS) or ‘tak­ing cash in chunks’

This op­tion be­came avail­able through the new pen­sion free­doms. It al­lows you to take mul­ti­ple with­drawals (cash lump sums) from your pen­sion.

For each with­drawal, 25 per cent is tax-free and the other 75 per cent is taxed at your marginal tax rate for that tax year. The re­main­der of your pen­sion pot re­mains in­vested.

Re­cent re­search shows more than a quar­ter (27 per cent) of peo­ple with de­fined con­tri­bu­tion pen­sions feel that they don’t un­der­stand their pen­sion plan, while fewer than one in five (19 per cent) feel very con­fi­dent. ●● An­nu­ity

An an­nu­ity is an in­sur­ance prod­uct that gives you a guar­an­teed reg­u­lar in­come, ei­ther for your life­time or for the term of the an­nu­ity, which can be a shorter fixed pe­riod. There are lots of dif­fer­ent types of an­nu­ities. You don’t need to stay with your cur­rent provider to buy an an­nu­ity and can shop around to find the best prod­uct for you. You’ll usu­ally get a higher re­tire­ment in­come by shop­ping around.

Open mar­ket op­tion: This is the right you have to shop around to find an an­nu­ity that suits your needs. You don’t have to stay with your cur­rent pen­sion provider. The rates you are of­fered by dif­fer­ent an­nu­ity providers can vary dra­mat­i­cally and once you have made your choice, it can be ex­tremely dif­fi­cult and of­ten im­pos­si­ble to go back on your de­ci­sion. ●● Guar­an­teed An­nu­ity Rates (GARs)

This is a rate that was guar­an­teed by your pen­sion provider when you took out your pol­icy. As an­nu­ity rates have wors­ened over the years, th­ese are likely to be very valu­able and guar­an­tee you a fixed rate of in­come much higher than an­nu­ity rates on of­fer to­day would buy.

Se­lected re­tire­ment date (SRD): When you take out a per­sonal pen­sion, you se­lect the date when you think you would like to ac­cess your pen­sion pot. You do not have to take your pen­sion at the SRD, you may be able to take it ear­lier or later, but you should check the terms and con­di­tions of your pol­icy with your provider, as some poli­cies may have re­stric­tions.

If your pot is in­vested in with prof­its funds, the provider will of­ten have the abil­ity to ap­ply a re­duc­tion to your fund if you take it at a date other than your SRD. ●● Safe­guarded ben­e­fits

Th­ese are spe­cial fea­tures at­tached to your pen­sion pot that guar­an­tee cer­tain pay­ments. Safe­guarded ben­e­fits are usu­ally de­fined ben­e­fit pen­sions (for ex­am­ple, a fi­nal salary pen­sion, guar­an­teed min­i­mum pen­sion, or guar­an­teed de­ferred an­nu­ity). Some de­fined con­tri­bu­tion pen­sions have fea­tures at­tached which make them safe­guarded, which in­cludes a guar­an­tee from your pen­sion provider about the rate of pen­sion to be pro­vided when you re­tire (for ex­am­ple, a guar­an­teed an­nu­ity rate).

Trans­fer value: If you want to move your pen­sion from one provider to an­other, this is the amount you’d get if you moved your pen­sion else­where. It may be less than the ‘fund value’ of your pen­sion be­cause it will in­clude any charges for trans­fer­ring. ●● Flexi-Ac­cess Draw­down

This op­tion means that your money re­mains in­vested in a pen­sion fund. You can draw money out di­rectly from the pen­sion pot flex­i­bly, to ei­ther pro­vide an in­come or to take lump sums. You can only take one tax-free lump sum of 25 per cent of the to­tal pot when you put the whole pot into draw­down. All other money drawn will be taxed as in­come. The money left in your pen­sion can be in­vested, so the level of funds could go up or down. ●● Life­time al­lowance

The Life­time Al­lowance is a limit on the amount of pen­sion ben­e­fit that can be drawn from all of your pen­sion schemes – whether lump sums or re­tire­ment in­come – with­out trig­ger­ing an ex­tra tax charge.

It ap­plies to the to­tal of all the pen­sions you have, in­clud­ing both your de­fined con­tri­bu­tion and de­fined ben­e­fit schemes, but ex­clud­ing your State Pen­sion. This is cur­rently set at £1.25mil­lion and from April 2016 this will change to £1mil­lion. In some cir­cum­stances you can ap­ply to pro­tect your pen­sion sav­ings. If you are above this thresh­old, a tax charge will be ap­plied to any ex­cess pay­ments. ●● Ben­e­fit Crys­talli­sa­tion Event (BCE)

A BCE is an event that trig­gers the need to test your pen­sion sav­ings against the Life­time Al­lowance, to check they are within the sav­ings lim­its al­lowed. If they go above this limit ex­cess funds will be sub­ject to an ad­di­tional tax charge.

A BCE hap­pens in a num­ber of cir­cum­stances, such as when you ac­cess your pen­sion funds by pur­chas­ing an an­nu­ity or draw­down prod­uct. Also if you die be­fore tak­ing any of your pen­sion pot or you have not taken all of your pen­sions funds by 75, this is also a BCE and the sav­ings ver­sus life­time al­lowance test is ap­plied.

If you need ad­vice please con­tact your lo­cal bureau who will make you an ap­point­ment with one of our spe­cial­ists.

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