Enjoy your ‘income’ gap year

Following the Budget of 2014, many changes are proposed to the way that pension benefits can be drawn. Of course much of the devil lies in the detail and it will be interesting to see how the legislation is detailed, the way that providers interpret the documentation and also the way they apply this to their schemes.

There is a view that there will be some who will decide that they will take their pension benefits in the form of tax-free cash, with the balance being drawn as a lump sum which will of course be taxable and very helpful to the Treasury.

Many financial planners have been using cash flow modelling for some years and this can have its benefits if applied correctly. I do wonder whether financial planners will be the ones that will need to guide individuals in the way that pension benefits can be bought and also to detail the concern that this fund needs to last the balance of their life rather than for a short term period whilst they enjoy themselves on pastimes that are possibly not affordable.

One thought that springs to mind is that we may see the proliferation of ‘gap years’. These could be years whereby individuals leave work and create a year where they receive no income from other sources and draw pension benefits in that year trying to take lump sums from pension schemes either taxed at nil rate or taxed at basic rate possibly rather than higher rate had they drawn all of their benefits in one year.

This might be a creative way of reducing the tax take on the pension benefits going forward.

Obviously time will tell how this legislation will manifest itself, although it is good that the Chancellor has proposed that individuals who are drawing retirement benefits receive face-to-face advice. We look forward to being involved in providing advice to our clients and enquirers.

If you would like to know more about the way that pension benefits can be drawn then please do not hesitate to contact the team at Chapters Financial.

No individual pension/ financial advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.