Although resident in Dubai, I have a pension in the UK. I have heard the rules are changing so that I will have the option to take all the money out and do with it as I wish instead of having to buy an annuity. Is this correct, and how does it work? TP, Dubai
There are important changes that are due to take place regarding UK pensions with effect from April 6 this year. To date, no matter the type of pension scheme, it was only possible to take a certain amount of the value, generally up to 25 per cent, as a Pension Commencement Lump Sum (formerly known as tax-free cash) and the monies remaining had to be used to provide an income. There are various ways of doing this, not just by the traditional purchase of an annuity, with the options depending on the type and size of the plan and its suitability. When the changes come in, people who have UK pensions that are on a money purchase basis, as opposed to defined contribution (final salary) schemes, and have reached age 55 or over will be able to take the full value of the pension fund as cash, but there will still be tax to pay. Once the Pension Commencement Lump Sum has been calculated, the balance will then be subject to UK income tax at the individual’s highest rate. Above the Personal Allowance limit of £10,000 (Dh54,155), tax will be payable at 20 per cent, then 40 per cent and then 45 per cent. The rate of 45 per cent is payable on income over £150,000. Anyone who is not resident in the UK would also have to pay this income tax, as this will be considered income arising in the UK. The changes are more complex than they appear initially and it is important to take professional advice to ensure the best course of action is taken.
Keren Bobker is an independent financial adviser with Holborn Assets in Dubai, with over 20 years of experience. Contact her at email@example.com. Follow her on Twitter at @FinancialUAE.
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