23rd March 2016 at 4:55pm
As usual, we were busy on Budget day on 16 March to quickly bring you the financial, pensions and tax changes which matter to you.
As part of this, we asked you for your feedback on the Budget and whether you found our blog helpful.
More than 180 of you were quick to reply, and we’re grateful that you took the time to share your thoughts with us – and we want to address the questions you asked us.
On a positive note, almost all of you who replied found the blog helpful. We’re glad to hear it.
Many of you are interested in similar topics, with tax and investing at the top of many people’s agenda.
We’ve covered the most common questions you put to us in our Q&A below. You also told us you want us to make complex legislative issues simple. We try our best but we need your feedback to tell us if we’re getting it right, or not.
Capital Gain Tax: hands up, we got it wrong
We’d particularly like to thank the three eagle-eyed readers who spotted our error when it came to the Capital Gains Tax cuts.
We try to get our Budget news out as quickly as we can; making sure the information is accurate, informative and relevant. We’re sorry, on this occasion we got it wrong.
We said that the CGT cuts “could mean you’ll pay less tax if you sell shares or a second property, for example.”
Actually, this isn’t true as property isn’t included in this change. We rectified this as soon as we could. You can read our Budget 2016 blog here.
Budget 2016 Q&A: Here’s what you asked us
We answer your questions on pensions and retirement. You can read our Q&A on savings, investing and tax here.
How do I save on tax when it comes to my pension?
The key to unlocking a tax-efficient retirement income is to make sure you have made full use of the available tax allowances. Paying less tax will mean your savings will last longer in retirement and potentially provide a greater legacy for your loved ones.
It’s easy to overlook the tax effect of withdrawals and end up paying more tax for the same net income. The new pension freedoms may be tempting; with access to all your pension once you reach age 55.
But withdrawing all your pension in one go will mean all of your pension income ends up being taxed in a single tax year and could see a large slice of your pension income taxed at 40% or even 45%.
If you take it over a number of years some of your income could fall within your tax-free personal allowance or taxed at 20% rather than 40%.
The Taxing Question About Pension Freedoms covers the mains issues but tax can be complicated, and we recommend you speak to an expert to stay on track.
There have been a lot of changes announced around pensions and tax recently. Our infographic also highlights some useful points.
Should I pay off my mortgage when I retire?
This is a tough question to answer as it really depends on your circumstances.
It’ll depend on a number of things; your attitude towards debt; the type of mortgage you have; and what interest rate you are paying. But it essentially it boils down to whether you believe the investment returns on your savings will be greater than the interest you pay on your mortgage.
One theory is that if the rate is low and you have substantial investments it could make financial sense to retain the mortgage and keep your savings invested.
It’s worth considering, too, how long your mortgage term is due to last and how affordable you might find the payments a few years down the line. How does this fit with your overall financial situation?
If you pay off the mortgage, will you have enough left – perhaps from other pensions, part-time work or the State Pension when it kicks in – to live off comfortably?
I have a small pension pot can I withdraw it all next year when I’m retiring?
The general answer is yes, but it could also depend on how much it is worth and what kind of pension you have.
The new pension freedoms, which give unrestricted access from age 55, only apply to money purchase pensions. These are pensions where the contributions you pay go into your separate pension pot which is invested for your retirement.
The new rules don’t apply to defined benefit pensions. These are offered by employers where the amount you receive in retirement is based on your length of service and your salary.
Since pension freedoms were introduced, we have been at the forefront of providing customers access to their money in whatever way they want to take it, but there are a few older-style pensions which, because of the way they were set-up, cannot yet make full use of the pension freedoms.
Can I take 25% tax free cash and then buy an annuity?
Yes, you can but changes to pensions which came into effect in 2015 give you freedom and choice over how and when you take your pension savings.
You now have a number of options and you don’t have to take an annuity unless you want to.
You can take 25% of your total pension pot tax free from the age of 55, take chunks of money out as and when you want to (a bit like a bank account), or set up a regular income, known as drawdown, or buy an annuity. Or you can take a mix of all or any of these.
The Government’s Pension wise website has useful information on this, here.
You can also take your whole pot if that’s what you want – it’s your money, after all – but there could be a high tax penalty to pay which would radically reduce the amount of money you get in your hands, so to speak.
Lots of people still wait until their 60s, or even 70s, before they touch their pension savings, leaving their money invested so that there is potential for more growth – and a bigger pot will last longer.
Some people do this to that they can pass their pension on to their loved ones. The new rules mean this can sometimes be free of tax.
I need advice to help me with my pension planning
We have a range of guides and calculators to help you tackle the basics of pensions planning.
From helping you work out how much you’ll need in retirement to how much you could realistically have when you do retire, our pension calculator can help you make informed decisions about your pension so you can prepare for the future you want.
Once you’re ready to retire we have tools, guides and calculators to help with that too.
If you’re aged 50 or over, it’s well worth looking at the Pension wise website, although it focuses more on the options that are open to you when you’re about to retire.
If you have a financial adviser, they can play a crucial role helping you plan.
How do I best plan for retirement?
Is there a magic number when it comes to how much you’ll need to retire comfortably?
It’s undoubtedly one of the most important questions you’ll ever ask.
Just how do you plan for retirement to make sure you can enjoy the life you want, and have enough to last you as long as you need it? And with rising life expectancy rates, that could be until you’re well into your 80s or 90s.
There’s a quick, three-step process you can follow that can help. It involves estimating your future living expenses, tallying up your retirement income and calculating the difference.
You can read more in our ‘Retirement Savings – What’s the Magic Number?’ article. But do bear in mind that while this can be a helpful starting point, you shouldn’t rely on it.
If you’re using your retirement savings to take a flexible income (often called drawdown), you also need to make sure you’re invested the right way so your money lasts as long as you need it to.
Find out more about investing in our ‘Five-point checklist for investing for retirement’.
The information in this blog or any response to comments should not be regarded as financial advice. Information correct as of March 2016. A personal pension is an investment and its value can go up or down and may be worth less than you paid in.