24 February 2015

Should I ... Start a Pension Income before April 2015?

In April, pension rules change, and it will be possible to withdraw money from your pension plan "like a bank account". In practice that will depend on what your pension provider offers, but let's assume you can do it and that you have good reason to want to do it.

But there's a problem. If you use the new flexibilities then your ability to make further contributions to your pension are limited. In fact the Annual Allowance (which limits how much you can add to your pension in a year) comes down to £10,000.

If you want to withdraw a bit in the near future, but still have the ability to make sizeable contributions from earned income - perhaps from a redundancy payment, or because you are selling a business - you could be painfully limited.

But there's a solution. If you move your pension (or part of it) into a "capped drawdown" arrangement before April (that's under the current drawdown rules) and take some benefit such as the tax-free lump sum, then you have locked into the old drawdown regime for the time being, and that leaves you with the original Annual Allowance of £40,000 (provided you don't exceed the cap on income taken).

I would recommend taking professional advice when making changes to your pension arrangements.

16 February 2015

Why your house cannot be your pension

Often someone will say - "my house is going to be my pension" - normally someone who hasn't thought about a pension soon enough!

But here's some reasons why that is unlikely to be the best thing:

1. You need somewhere to live, as well as having an income.
You can certainly down-size to a smaller house or rent, and then use the capital left to live off, but it's not always easy to live in a much smaller space, or in a cheaper area of the country.

2. You are reliant on house price movements
House prices have generally increased in recent years, but the falls of the 1980's still bring painful memories to many. And you don't want a fall just before you need to sell.

3. Equity Release plans are available, but they don't make financial sense too young
Since interest on a lifetime mortgage is added to the loan, you don't want to arrange it too soon. In fact the provider of the plan will limit the amount you can raise, the younger you are.

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