A NEW RETIREMENT MENU FOR PERSONAL PENSIONS!

RETIREMENT MENU

Minimum age 55

(Note: different rules apply to Final Salary/Defined Benefit Pensions and some other schemes)

Cash please

You can have it all as cash but only 25% of it tax-free. You will be taxed on whatever else you take out in the same way as if you had earned it in that Tax Year.

Income please Option 1: You can still get an income guaranteed for life (Annuity -see further

notes below)

Option 2: If you have health issues you may be entitled to a higher guaranteed income for life (Enhanced Annuity)

Option 3: Draw an income from your pension fund itself (Drawdown)

Option 4: Use a guaranteed fund to protect your investment but still be able to take an income (Guarantees).

State Pension please  The State Pension is increasing but the State Pension age is also going please up. To find out when you will receive your State Pension go to www.gov.uk/calculate-state-pension.

“Side Dishes”

You may have other sources of income to help in retirement. This might be investment income, or rental income from an investment property or income from letting out one or more rooms in your home  (Rent-A-Room scheme allows you to earn up to £7500 tax-free).

More on Annuities 

There are a variety of annuities available. The general concept is that you use all or some of your pension fund to buy a guaranteed income for life or for a specified period. The older you are, the more income you will get for your money. The guaranteed income can be for the person with the pension and a spouse or partner – to go on for as long as the last survivor is alive. The annuity can provide a level income or an increasing income. There are also annuities which are linked to investments so they can go up or down.

More exotic dishes

The pension rules are different for other types of pensions. If yours is not a personal pension, do feel free to contact us for guidance.

MORTGAGE PRISONER?

There are a number of property owners who find themselves unable to obtain a new mortgage due to the new mortgage requirements for proving income and affordability.

In some cases that has left borrowers either unable to move, or stuck with their lender’s Standard Variable Rate when new fixed rates are 1% or 2% better. Just a 1% reduction on a £150,000 mortgage would save £1500 in interest each year (assuming a 20 year repayment mortgage). Here are a few examples of this “mortgage prisoner” problem along with possible solutions:

Problem: Some older people cannot get a new mortgage with a long term because of the new attitude of most lenders to maximum mortgage ages.

Solution: Try your present lender to see if they can provide some flexibility or contact us as there are a number of niche lenders who can take a more enlightened view about maximum mortgage ages — where the deal makes sense.

Problem: Some people were able to take a mortgage out in the past when it was possible to self-certify the level of their income. In virtually all cases now income must be proven and the self-employed will be assessed on their net income as shown by the Tax Office.

Solution: Some lenders are more generous in their income calculations than others and some lenders require only one year’s completed accounts. For those over 55, Equity Release solutions may be of help as these are based on age and property value only. We can make enquiries for you.

Problem: Some people took out interest-only mortgages with a plan of how to repay them, but that original plan is no longer possible.

Solution: For some simply downsizing will be a solution. For others who want to stay where they are, however, there are other options. There are still some interest-only mortgage options available if one is simply looking to extend the time he can continue to stay in the property. It is also possible for those aged 55 or older to use an Equity Release lifetime mortgage or similar solution. We can make enquiries for you.

Note: Lending restrictions are expected to tighten even further by the end of March 2016.

MORTGAGES AND BUY-TO-LETS

Mortgage rates remain extremely low – probably the lowest they have ever been. It is a good time to take advantage of fixing an interest rate for the next 4 or 5 years. Even the costs of changing lenders have been reduced. Call us if you would like a quote.

The July Budget announced a change in the taxation of Buy-To-Let mortgages. Up to now a landlord could obtain tax relief on all the interest paid on his buy-to-let mortgages, and if he were a higher rate taxpayer, that tax relief could be up to 40% or even 45% for the very wealth The Budget announcement confirmed that from the 6th of April next year, this tax relief would be limited to 20% (Basic Rate Tax) even if a landlord is a higher rate taxpayer. The Government is hoping this will result in fewer properties being purchased by landlords

and cool the market down a bit.

Those aged 55 and older may want to look at their Lifetime Mortgage options which would permit interest-only payment arrangements indefinitely.

PENSION INCOME OPTIONS

If you have reached the magic age of 55, you can draw your pension benefits from a private pension in a number of different ways. These include the following:

• you can use all the pension fund to buy an income guaranteed for life (annuity);

• you can take 25% of the pension fund and use the remainder to buy an annuity;

• you can take 25% of the fund tax-free and leave the remainder invested with the option to draw

out a regular income or lump sums as you wish;

• you can cash in the whole pension, receiving 25% free of tax, and the remainder taxed as if you had earned it in that tax year.

Note: Other than the 25% you can take tax-free, all other income or lump sums you take will be subject to tax, so it is very important to take advice on the tax you have to pay.

There are pros and cons for all of these choices. Do give us a ring if you would like to go over your options.