It’s been reported recently that retired citizens and people who are soon to be approaching their retirement, may soon be able to cash in a set amount of their pension for a lump sum return.
The Liberal Democrats minister Steve Webb, has reportedly said pensioners who are looking to part with their pension annuities, will soon be able to sell them to the highest interested bidder, and while some are criticizing the move, calling it irresponsible and risky, many are lauding it as a fine example of how the government is finally learning to listen to the needs of British pensioners on having control of their own pensions instead of being told what to do.
Minister Webb also said, the changes are being drawn up and finalised in the Department for Work and Pensions. Any effects of the new plans won’t come into force any time before April 2015. Webb also highlighted that there are no agreements as of yet from his Conservative coalition colleagues over the plans, but it’s expected to reach unanimous agreement.
Under the current rules, people are only able to ‘unlock’ their pensions if they have a terminal illness or extraordinary circumstances. That being said, those who do unlock their pensions, still have to pay up to 55 % tax on each withdraw.
How can I sell my pension?
So what can we expect when if the new changes to the pension’s annuities come into effect?
1. Selling your pension fund which is under the value of 30,000 pounds?
Under the current rules, if you are looking to cash in on your pension fund, then you can sell a lump sum that is called a ‘pension triviality’. In order to be eligible for this, you must be retired and 55 years old or above. You won’t be taxed for the first 25% of the total amount, however, after the 25%, you will be subject to tax. It’s worth noting. Any changes to this rule could see the age limits being reduced and tax reduced as well. Cashing in a sum of this size can push up your tax band so be careful.
2. Selling an individual pension fund that’s less than 10,000 pounds?
If you are selling your individual pension fund, the current rules require individuals to be over the age of 60 and must not have sold their annuities no more than twice. Individuals are able to sell a quarter of the amount without it being taxed, and then the rest will be taxed in accordance with the year that it is being withdrawn. However under the new plans, it’s expected retired workers will be able to sell their annuities as many times as they wish but tax levels could remain the same.
If the new plans do go ahead and everything runs smoothly, then we could see more pensioners and individuals dipping into their pension funds to accommodate their finances and selling annuities will become a common practice in the future.