Blog - CAML

Check the tax before you take money from your pension

10 December 2015

Being asked to contribute to the Citizens Advice Merton and Lambeth blog after eight months as a Pension Wise guider, I immediately think about why Pension Wise is such a useful service for pension savers.

One important point is that if people have saved into their pension and are reaching the age of 55 they have the opportunity to use their funds for various purposes including providing a regular income or money for special occasions such as a nice holiday, home improvement or any other purpose. Pension Wise can help people think about the best way of taking their money from their fund and keeping a longer term perspective.

While employed, most savers don’t have the luxury of being able to choose when to take their money and how much tax they are going to pay on it. An employee earns, pays taxes, and that’s it! However, once you have pension savings you can decide when and how you take your money. So for example, people are generally on a higher tax band while still working, than when they retire, often only with their State Pension. If they defer taking money until a later date they may be able to get more cash for the same amount of pension fund by paying less tax. These considerations are new for many people and it is a pleasure to make users aware of the effect of tax rates on the amount of money they can get out of their pension.

Being completely impartial is critically important to Pension Wise. Other individuals and organisations often have the proverbial axe to grind. The pension provider has certain products on offer they want to sell and the Financial Adviser will be very keen to plan your whole financial future. We are completely free to guide people for example to the immensely useful annuity comparison tool at the Money Advice Service or the new tax calculator on the Pension Wise website.

By the way, the post pension freedom focus of the press on pensioners driving around town in Lamborghinis using their pension money has faded considerably. People have come to realize that taking all your money out as cash is very inefficient, as it leads to the taxman taking a larger chunk than necessary.

Of course there are still many Lamborghinis on the streets of Knightsbridge but they are driven by oil millionaires and hedge fund managers rather than spendthrift pension savers!

If you are 50 or over and have a defined contribution pension – also known as a “money purchase” pension – call us on 020 3559 7400 and we can arrange a face to face Pension Wise appointment for you.

Konrad Schlatte
Pension Wise Caseworker

The Housing Bill – two legs good; two legs bad

30 October 2015

As the Housing Bill makes its way through the legislative process, it presents Citizens Advice offices in London with a conundrum. Through our co-ordinated Research & Campaigns work, two key recommendations from national Citizens Advice are included – but there are two definite stings in the tail.

The success is two measures for those in privately rented homes. The first is a banning order for rogue landlords – those who rent out dangerous and unhealthy accommodation that they refuse to put right. Their names are added to a national database and the banning order makes it an offence for them to rent out their properties again. Sub-standard letting agencies also appear on the list.

The second measure allows a refund of up to one year’s rent where landlords have provided a sub-standard home or a poor quality service. If a landlord commits an offence under The Housing Act, 2004, uses violence or harassment against a tenant or evicts them illegally then this measure becomes active.This introduces the idea of a refund for poor quality housing as with most other things one can buy.

A major Citizens Advice study earlier this year found 740,000 households in England live in privately rented homes that present a severe threat to tenants’ health. These properties contain 510,000 children and 180,000 have a disabled person. So across the country these two measures are needed.

They are especially welcome in London, where many of the UK’s nine million renters are concentrated and where home-owning is becoming an increasingly untenable proposition, even for those on average incomes.

On the downside, there is a potential erosion of tenants’ rights. The Bill proposes that where a landlord thinks a tenant has abandoned the home then the landlord need not follow the proper eviction procedure. This measure seems fraught with the potential for misuse with legal redress inadequate and only available well after the fact – is the court really going to give you your home back when it’s already been let to someone else? Almost certainly not.

Lastly, the Bill allows the extension of Right to Buy to Housing Association properties. This is a special concern for London which already has a woefully inadequate supply of affordable housing, especially as it is to be paid for by the requirement for councils to sell off their most valuable housing when it becomes vacant. The grey areas perhaps need better definition so that the overall level of affordable housing does not fall in London. If that overall level does fall then that will be catastrophic for many of our clients as well as the character of our city.

There’s work to do. As ever, that includes gathering evidence, suggesting solutions instead of just raising problems and supplying national Citizens Advice with the data it needs to have mature conversations with government.

Could a Debt Relief Order help you?

29 October 2015

There are three types of insolvency in England for people whose debts are impossible to manage: bankruptcy, IVAs and Debt Relief Orders (DROs). Everyone has heard of bankruptcy and IVAs are widely advertised – if you have ever had a call call or text offering “a little known government scheme to write off 70% of your debts”, that was from a commercial firm trying to sell you an IVA.

DROs are much less well known. Introduced in 2009, they are the simplest, quickest and cheapest form of insolvency – so if you have major financial problems find out if a DRO might suit you.

You have to meet several criteria to be able to start a DRO including:

your total debts have to be less than £20,000. This was increased from £15,000 in October 2015 so that more people would qualify;
you can’t own a property, even if has negative equity;
you can’t own a car that is worth more than £1,000;
you can’t have savings or assets worth more than £1,000. Normal clothes and household things such as TVs, washing machines and furniture don’t count and it is only the second-hand value that matters, not what you paid for something;
you have to have less than £50 a month available to pay towards your debts. If your only income comes from benefits, you will automatically meet this.

A DRO lasts for a year. During this time you don’t have to make any payments towards your debts and your creditors are not allowed to hassle you or take you to court. At the end of the year, your debts are wiped out. If you would like to know more about how DROs work and what the criteria are, there is a guide here.

DROs are a good debt solution for people who meet the criteria and whose situation isn’t likely to improve soon.The DRO fee is only £90, much less than bankruptcy. And it is over in a year, unlike an IVA where you have to make monthly payments for five years.

If you have just lost your job and are struggling, but will be fine when you find another job, then a DRO isn’t a good idea. A token payment debt management plan would be a better temporary solution, to give you a breathing space.

Citizens Advice is the largest organiser of Debt Relief Orders in the country. We have several advisers in Merton and in Lambeth that can help you look at a DRO, decide if you meet all the criteria and set one up for you – and also talk through what your other possible debt solutions might be if a DRO isn’t right for you.

How a client “doubled his money” by attending a Pension Wise session

23 October 2015

My name is Kirsty Stone, I am a Pension Wise Caseworker based at Citizens Advice Merton and Lambeth.

During a recent interview with the Treasury for a promotional video, I was asked whether I have had any Pension Wise clients who were particularly memorable. I instantly thought about one client. Like most people approaching retirement, my client had been sent 50 pages of information, options and leaflets, none of which were particularly helpful to him. Amongst the mass of paperwork was a current valuation which had been broken down into 2 investments of a very similar value.

Understandably, my client thought these 2 figures referred to the value of the same pot of money but on different dates. But they didn’t! As a result, I had the pleasure of informing him that he was better off than he had originally thought.

This client is not alone in his confusion and his experience highlights the need for pension providers to make their products and paperwork easier to understand. Individuals who come to see us have worked and saved money for their retirement but, unfortunately, are now left with what can feel like an incredibly daunting and intimidating decision – this does not need to be the case.

The aim is that at the end of every Pension Wise session each client will be empowered and have the confidence to make the best decision for them as they contemplate retirement. However, this will remain difficult where pension providers are not simplifying their language and paperwork. It is therefore down to each Pension Wise Guider to make certain every individual who attends a Pension Wise session leaves feeling able to ask the right questions of their pension provider and doesn’t feel pressured into taking a certain action simply because pensions can be difficult to understand.

The pension freedoms available since April provide much more flexibility and potential for anyone with a defined contribution pension and it is vital that people take the time for an impartial, unbiased Pension Wise session, in order to make sure they get the most out of their retirement. Although, unfortunately, we cannot guarantee that we can double every client’s pension!

If you are over 50 and have defined contribution pension – also known is a “money purchase” pension – call us on 0300 330 1001 and we can arrange a Pension Wise appointment, which could be either over the phone or face-to-face.