Money Matters by SCott Woods
Pension policy holders in older pension contracts may be able to benefit from a new flexibility in pension rules.
Restrictions are being temporarily lifted but without policy holders losing out on any pre-A-day tax-free cash entitlements.
This could preserve any additional tax-free cash amounts greater than the usual 25 per cent on transfer.
But you need to act soon and be able to take the cash before Octobber 2015.
Whereas before a pension transfer normally meant giving up any higher lump sum entitlement, this has just changed for a temporary period until April 2015.
Clients looking to take their benefits soon can now transfer to a new provider without losing their lump sum protection so long as they transfer all their rights from the old pension in one go.
The transfer happens before April 6, 2015 and all tax-free cash under the new pension is taken before October 6, 2015.
This creates a short window of opportunity for those “at retirement” with protected lump sums to move out of inflexible legacy pensions, such as buy-out contracts, into more modern contracts better placed to support next April’s income flexibility when it comes.
But these options are only of benefit if you want to take your lump sum before October 2015, so missing this deadline means the lump sum protection is lost.
In practice, the safest approach is possibly to fully crystallise benefits immediately after the transfer to remove this risk.
This needn’t mean drawing an income but just taking the enhanced lump sum and designating the remaining funds for drawdown will meet the requirements.
As always, getting advice is important as you must check there aren’t other implications of making the transfer that outweighs the benefits.