30 June 2014

Rethinking Retirement Planning 1 - Using Pensions as Savings

The March 2014 Budget has shaken up retirement planning. By promising easy access to pension plans (defined contribution ones, anyway) new opportunities - and risks - are opened up. Here we look at your pension as savings.

While pensions are taxed differently*, they look a lot more like ISAs than they used to. When you need some capital to spend you will be able to withdraw it from your pension. Since there is a limit to ISA savings putting spare cash beyond that limit into your pension now seems like a better thing than it used to, since you will be able to get it out again.

But there are dangers. Clearly a pension is there primarily to provide an income in retirement, and if you've spent it all, you are going to have hard times!

So it needs some thought, but the new freedoms are likely to be worth taking advantage of.

*Basically, ISAs are subject to tax on the way in (when you add money to them) since that money comes from taxed income, while pensions are taxed on the way out (when you take an income or withdraw a lump sum - other than the initial tax-free lump sum, that is).

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