Pensions - take 25% now, before Labour can tax it?

[missinglalaland]

I can see Labour are preparing the ground for tax rises. With promises not to raise income tax or national insurance, I think they will have to come after pensions.

My DH is 55, and still working with no plans to retire. He has not saved enough to hit the maximum tax free ceiling on a lump sum.

Should he take out 25% of what he dies have and crystalise that pot? Bung the money in ISA’s and against the mortgage, and keep saving into his pension?

Idea is to do it now before the October budget, when the tax free lump sum could disappear.

I cannot see any downside. What might I be missing?

Really? Why?

A couple of things - they can generally only be passed on tax free if you die before 75, which was (originally) intended to mean that the surviving spouse/children had some form of protection. Die after 75 and it's taxed at the marginal income tax rate IIRC. Secondly, anyone earning in and above the levels to which tapering applies will be a higher rate taxpayer on retirement anyway. Unless they do what I (and many of my cohort are doing), which is take advantage of one of the EU retirement / digital working visas to give 10 years of no / low income tax, and wait for the dust to settle in the UK. Changing pension rules every few years is destructive...

The post was about passing on a pot free from inheritance tax, so tax on withdrawal isn't relevant. And someone on £95k - who most people would consider a high earner - could put in the full £60k with no tapering.

where you were a member of a pension scheme in 2021, there are rights that still allow you to take your benefit at 55

Potentially. Depends whether the scheme Ts&Cs specified 55 or just minimum pension age.

Just pension companies take ages. My husband has just been quoted 6 weeks.
They are busy because everyone is trying to take their 25% at the moment.

Tell me more about digital working visas!

Italy already have one, Portugal and Spain are on the way I think... With the added bonus that property in some very nice parts of Italy is not that expensive

Italy Announces New Digital Nomad Visa in 2024 (iasservices.org.uk)

Portugal Retirement Visa 2024 Guide (globalcitizensolutions.com)

How does this allow you to work and avoid tax?

At the moment pension income in Portugal is only taxed at 10% if sourced from overseas. On the working front / digital nomad, Italy applies a 5% tax rate to freelancers, rising to 15% after 5 years. This is on turnover not profit though, but is brilliant if you provide advisory / consulting / non exec services. Limited to turnover of €85k though I think. But for a day or two a week for part of the year that's fine

Retiring to Portugal? The lowdown on visas and property – and why you'll only pay 10pc tax - Moving to Portugal

Can you link to any evidence of this? I've never heard or seen that mentioned and I'm aware of plenty of people who have taken their 25% and are still working or otherwise not drawing pension yet.

People, of course, don't need to use an advisor anyway.

Yes, potentially. But all hypothetical.

l don’t mean to derail the thread, and I am sorry for being so ignorant, but if the money is earned in the UK, won’t the UK tax it?

No link, just my experience as a financial adviser.

I've spoken to a few clients since Labour have come into power and who would like to access their 25% TFC and any advice I give on this has to be "passed" by Compliance first. No problem if they are taking it out to pay off debt, or to pay for a wedding or a deposit on a house, but just taking money out of a tax-efficient vehicle & put in into a bank account is a big No No.

Of course you dont need to use an adviser, but most of my clients I've known for 20+ years and so they will obviously come to me for advice first.

That will depend on your tax residency, how you carry out the work and where you carry out the work I suspect. If you're outside the UK for > 183 (I think?) days and work remotely for a UK business and bill it from overseas then there's probably no problem. Remain a UK resident for tax purposes and travel to the UK for the work, then yes, almost certainly subject to UK tax.

That sounds like a company policy rather than anything more global.

Labour have only been a power a month. I can't help but think that any major rule change like this would have hit the press. You don't even have to tell anyone why you're taking it, you just have to be the right age.

Obviously as an FA yourself you only see a specific part of the market. No-one I know uses an FA (I tried once, he was awful), and I've not heard any tales of people having trouble with this.

I didn't say it was global, just my experience. But its nothing new, Compliance in different companies I've worked for have always erred on the side of caution. Just because George Osborne allowed the masses to access their pensions at age 55 (soon to be 57) doesn't mean it's right or sensible to do so.

Big advisory firms are running scared of the FCA. Too many have been caught in mis-selling scandals in the past (endowments, pensions to name just 2) and it wont be too long before consumers starting complaining to the Financial Ombudsman when they have no money in their pensions at age 70.

More good reasons for not using advisors.

We've taken the 25% tax free lump sum from three different pension firms and none have asked what the money is being spent on. I've just ticked the disclaimers on their application forms to confirm I understand all the different risks etc. It's strange because they ask who you've had advice from and want you to put in the advisers details, but at the end of all that, there's a tick box to say "I've had no professional advice" and they're happy with that. It does seem as if it's having a financial adviser that the pension firm wants more details whereas if you don't have one and go direct, they're happy with disclaimers. Sounds like it's easier and quicker not to use a financial adviser.

But then the risk is all on you. If you use an advisor then the risk is with them.

The other thing is where the money is invested post crystallisation. Pension firms have now got to point you to their "pathways" as to where the rest of your money is invested. Some have very limited choices and unless they allow you to continue in your current selected funds you could find yourself in simple Bond or Cash funds.

As an adviser myself I can confirm that we cannot recommend cashing in money from an IHT sheltered wrapper and recommending putting it into a bank account that will lose 40% if there is a potential IHT liability.

Because we take the liability for our recommendations.

Most pension schemes now do no longer allow you to just absolve them of any liability as they will now also be caught out by ‘causing foreseeable harm’ and becoming liable. They will now insist you take advice and I get at least one call a week from someone demanding I just sign the advice confirmation which of course I cannot do.

My favourite request was someone wanting to cash in his whole pension to do his own investing with a famous platform as I ‘don’t like pensions’. Mate, your pension is invested and if you don’t like what you are invested in we can change it or you can even do it yourself without taking it out of the pension.

You are still working, you will pay 60% tax on a large part of it but telling me you know what you are doing. Sure.

This is why using financial advisors is a waste of time and money, they have no clue what they are talking about and charge you for it

Your compliance department is being ridiculous, clients have the right to access their pension pot, it's their money.

Yes, in an ideal world it would be great if they can give a reason like paying off a pension etc, but ultimately they have the right to access their pension plan.

No provider or platform I deal with asks for the reason that a client wants to access their plan, they're not providing advice, it's us the advisors that are giving the advice.

Not sure who you are working for, but a clients concern that a change of legislation is imminent, is completely acceptable reason and your suitability letter would confirm their wants and needs and how you met that.

When I took some out of my pension I was asked why and was I in financial difficulty, I had to ring up and was passed round several people and spent ages on the phone, then they emailed me loads of paperwork to fill in to get it. There was no way of just accessing this pension online like a bank account. This wasn't a financial advisor just the pension company, I think really they want you to take an annuity out.

No they don't want you to take an annuity out? They want you to take financial advice!

Otherwise they have to give it and they don't want to!

Why would they want you to take an annuity out?

Presumably if you die and leave everything including your pension pots to your husband/wife that’s still tax free?