Emmersons Solicitors - Newcastle and Sunderland
Jaqueline Emmerson Newcastle Solitor
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How Will The New Pension Rules Affect You?

 

How will the new pension rules affect you. Pension Solicitors Newcastle and Sunderland.

Well it has been all change in April with pensions. For those of you aged 55 and over who hadn’t already cashed in your pensions you can now do so. However, as one of my Collaborative Family Law colleagues pointed out at our recent meeting, the government have done this to boost their own coffers and not necessarily yours.


I was a little taken aback by this assertion but to a certain extent it is true. Notably it is only private pensions that can be cashed in not those that are administered by government departments. So the state won’t be giving you any increased lump sums from their funds. They can only be claimed from your private pension funds!


Don’t forget that you will also be taxed on any amount of capital that you take over and above 25%. It has always been possible to take a tax free lump sum of 25% of the value of your pension. Now you can take all of your pension as a lump sum. But would you want to do this?


At Emmersons Solicitors we deal with three main areas of law that will be affected by these changes.


Will Writing

For many years we have helped our clients to write wills in the best way possible to help them to maximise personal use of their money whilst also trying to reduce their inheritance tax bills. If you cash in all of your pension now will you have more immediate tax to pay? If you are a lower rate tax payer you may think that this does not affect you. However, let’s say that you earn £30,000 a year and pay the lower rate of tax. If you suddenly come into a lump sum of £100,000 because you have cashed in all of pension then the first 25% would be free of tax. However the next £75,000 would be subject to tax. As you will now be receiving over the higher rate tax limit part of this will be taxed at at least 40%. Thus my colleague was right, the government have just collected themselves some tax that wouldn’t otherwise have been available to them.


In addition you have just released extra assets ino your estate. If you are single will your estate be worth more than £325,000 because you have cashed in your pension? If so, those inheriting your estate will have to pay inheritance tax of 40% on anything over the current £325,000 limit. If you are married or in a Civil Partnership then the tax would be payable on anything over £650,000. If you think that these issues affect you then please get in touch with us for advice.


Divorce/Dissolution

For the last twenty five years, when dealing with the the financial settlement following a divorce, I have been used to dealing with the distribution of pensions in certain ways. Like all Family Law Specialists, I have learnt the way that judges tend to deal with pensions. This is a complicated area of law and requires a lot of thought and preparation. A pension is often one of the most valuable assets that a person has.


Let’s consider a typical case; Dave and Sandra have been married for sixteen years, they are now divorcing. Sandra works for the Civil Service. She worked full-time before having the children, part-time for a few years and has just resumed full-time work. Sandra earns about £25,000 per year. There are two children of the marriage aged 11 and 13. Dave has always worked full-time, he works for a large privately run organisation, he has a works pension and he has always paid into a private pension. Dave earns £75,000 per year and he is 55 years of age, Sandra is 50.


Prior to the change in pension laws I may have been trying to negotiate a deal whereby Sandra, the lower earner, kept a greater share of equity in the house so that she could afford to stay in her home. It would be difficult for her on her salary to obtain a greater mortgage in order to buy out Dave’s share of the property. In return Dave would retain his pension, he would be able to obtain another mortgage using his salary. He could also cash in his private pension at 55 at the earliest or at 60 or 65 depending upon his Pension Arrangement. Dave would have taken his 25% tax free and the remainder could be used for an annuity.


How will this situation work now? Sandra can see that Dave can cash in all of his pension now. She may want him to clear the full mortgage on the house as he is a much higher earner. She may also seek some of the lump sump from his pension. If Dave’s lump sum is worth £200,000 and the house is only worth £125,000 this would be of great interest to Sandra.


However, if I was representing Dave I would be concerned that he should be expected to cash in all of his pension now. Sandra won’t be able to cash in her pension. So Dave would potentially lose 40% tax from a large proportion of his pension, he would be handing over capital to Sandra now and he would be depriving himself of enhanced income in his retirement years, which in Dave’s case isn’t that far away! Sandra will retain her pension and be able to rely upon the income from it when she retires.


Any deal reached for this couple must be fair to them both. It will be good practice to employ the services of an actuary who could work out how much each couple should receive now, in order to reduce any tax bills and how much pension they would each need in the future to be able to live comfortably. There will need to be a whole new way of thinking for Family Law Specialists, Actuaries and for judges. I’ve already got my answer worked out for this couple. I can’t wait to get going with these changes, I just love a well negotiated settlement!


And finally..


Conveyancing

If you are thinking of investing your pension pot into property then Emmersons Solicitors Conveyancing Team can assist you. We also know of some decent letting and management agents who can help you find the perfect property in which to invest. You do not need to pay thousands of pounds into schemes to help you find a property, it is much more straightforward than that!

If you think we can help you use your new found pension wealth in a sensible and tax efficient way then call us:
Pensions Solicitors - Newcastle:   0191 284 6989
Pensions Solicitors - Sunderland: 0191 567 6667


Author: Jacqueline Emmerson

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