Simplification or Complification???????

It is now four years since A day when the pension system was supposed to be simplified. The reality is that we are now in a position where the pension rules are now even more complex than those around pre Aday. Time for another go maybe – a thought for the new Government.

This was brought home last week by a client who approached an insurer direct who then tried to sell him an annuity. When  we were asked to look at his arrangements we found that he was entitled to more than 25% tax free cash under the HMRC rules.

How many more people are missing ouit becsue of this complexity????

The tax free cash issue

Most people take tax free cash as they see this is as a good way of building cash funds in retirement. There are a couple of issues however that need consideration:

1. If you really do not need the cash and want to buy an annuity then it is essential to compare taking a full pension annuity with taking tax free cash and buying a purchased life annuity.  The tax treatment of these annuities is different and taking tax free cash and buying a purchased life annuity can bring about an increase to after tax income. A good adviser will be able to do the calulations.

2. If you are in a final salary scheme look at the lost income as a result of taking the tax free cash. This can be significant and when turmned into an annuity rate can look very good value. The way to compare is on a cash flowbasis and again a good adviser will be able to do this.

As with everything – learn and be sure to investigate the options.