How To Profit From The Pension Changes

How To Profit From The Pension Changes
Australia by Julian Cohen. Why?

Revealing the biggest changes in pensions since 1921, George Osborne has stunned even the most experienced people in the pensions industry with his revolutionary 2014 Budget

When it comes to pensions, people should have the right to make their own choices about their money, without being forced to make decisions.

It seems there’s been more column inches written about pensions in the week following the Budget than have been written in recent years.  Given the changes are so far reaching, it’s no surprise that pensions have been covered extensively in the industry media, as well as the mainstream press, both online and offline. 

The Biggest Pension Change

From April 2015, if you're 55 or older, you'll be able to take your entire pension pot as a lump sum.  The first 25% is tax free.  The balance is taxed at your marginal rate.

In most cases, when people retire, their income falls to a lower Income Tax band.  From a tax viewpoint, it clearly makes sense to maximise your SIPP contributions while you’re working, for if you decide to withdraw the money at a later date, the Income Tax you’ll pay is almost certainly likely be less than the Income Tax relief you will have enjoyed when you made your contribution.

In addition to any tax privileged growth you'll enjoy on the money in your SIPP, the Income Tax position alone means you're likely to be up on the deal, by contributing when you're working, and pulling it out when you're retired.  Never before has it been as attractive to save the maximum into your SIPP within HMRC limits.

Find Out How Much You Could Save

The annual allowance for pension savings is £40,000 in the 2014/15 tax year.  Prior to that, it's £50,000.  If you haven't saved the maximum in your SIPP in the previous three years, you can carry forward your unused pension savings to maximise your Income Tax Relief.  To find out how much you could save, here's a useful pension calculator on the HMRC website.

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That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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