The internet is a wonderful thing – a gateway to a world of possibilities and opportunities, but on occasion it can deceive us into feeling empowered to go it alone.
The new pension freedom rules have also opened up a world of possibilities, but people can come unstuck trying to navigate the new rules without professional advice. The cost can be extremely high.
We were approached by a firm of accountants and asked to verify the figures for the tax bill on fully encashing a pension plan. The policy holder was under the impression that when he directly approached the pension company, he would be receiving advice.
However, pension providers are not required to give advice. In fact they cannot give advice, they can only act on instruction. In this case, they acted on the request for full encashment.
Had the plan holder requested advice on how much of the plan should be encashed, they would have been referred to an adviser. The end result is that a basic rate tax payer has now been taxed around £40,000.
They have also lost a large part of their future pension contribution allowance, limiting any opportunity for further retirement planning. Even if there was no alternative source of funds to meet the client’s requirements, we could have potentially saved around £20,000 in tax simply through utilising some very basic tax planning.
At Mantle Financial Planning we have a great deal of experience in dealing with these sort of pension queries following the introduction of ‘pension freedoms’ in April 2015. We would always urge clients to seek advice on any financial matters – especially when it comes to complex pension rules.
If you would like to discuss your own personal financial planning situation, please contact us >>