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Pension Funds and Taxes

Pension Funds and Taxes
As of April, 2015, the rules have changed regarding U.K. pensions. Now, pensioners may withdraw their money at will, as if their pension scheme were a traditional savings account, either all in one large amount or regularly, in small portions. However, there are some concerns about possible tax liabilities that pensioners and employers alike need to be aware of. Under the new rules, 25% of any withdrawals are tax-free, and the remainder is taxed at your regular income tax rates. Which means of accessing your your retirement benefits depends on several factors, including:
– The number of income sources you have to draw from, including cash reserves, properties and pension pots from multiple funds.
– Whether you withdraw your pension in bulk or in regular payments
– Your overall tax rate
What Are the Tax Limits for Pension Schemes?
Pension allowances are currently £40,600 during each fiscal year, and £1.25 million over your lifetime; any unused allowances from the previous three years can be rolled over to top-up your pension fund to the current limit during the first tax year that you begin withdrawing from your pension pot. The limit on contributions is £10,600 per fund, and you must notify any other pension schemes you’re enrolled in if any of your contributions drops below that amount. That’s because your total liability and exemptions are interdependent from scheme to scheme; if you go over the £10,600 allowance on one scheme, your overall tax-free allowance drops to £30,600. 
There are three basic types of pension funds, and a different proportion of your contributions counts toward your annual allowance in each. Defined contribution pension schemes, which are the most common employer-provided funds, count the total amount of contributions from all sources toward your annual limit. Defined benefit contribution schemes count only any increases you have coming to you after you’ve reached retirement. The last type is a hybrid scheme, which will count the higher of the two amounts from between total contributions or pension increases, and apply that figure to your annual allowance. 
Maximizing Your Advantage
For pensioners who have little to no tax liability on additional income sources, the best strategy is to withdraw small amounts on a regular basis to cover expenses. This will distribute your tax liability over several fiscal years, as opposed to paying a much higher relative rate on a bulk withdrawal. For example, if your total pension pot is £200,000, you’ll pay tax at y9our regular rate on £150,000 by withdrawing the amount as a lump sum; that same amount will go further, with less tax paid up front, by taking £20,000 annually, paying tax on only 75% of that amount, or £15,000. That will put you in a lower income bracket and lessen the tax burden overall.
Pension fund directors like Fahad Al Rajaan oversee investments for workers and retirees, and help ensure that all transactions are smooth and efficient. They work in conjunction with everyone from insurance companies to public and private sector employees, and any other organizations that are responsible for taking care of group employee retirement benefits. This line of work is more essential than ever as more companies move away from government-funded pensions to private investment options in order to finance retirement pension schemes.

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