Chancellor George Osborne appears to have befriended pensioners in his latest budget by freeing them from having to purchase an annuity with their pension pot. The ability to draw down large lump sums at or after retirement appears to be a welcome move.
There could be a downside however. If the lump sum is used to buy an asset or remains in your bank account then if you are taken into care it could feature in your means test and cause you to pay in full the fees for your care. At present income from annuities is not subject to the means assessment. Considerable attention should then be given by newly retired pensioners to this possibility.
‘Care Fees and Inheritance Tax are the two major risks for Inheritance’ says David Dexter,’ and the Chancellors budget has not reduced those risks at all. In fact it has probably increased them.’ In addition to the potential Care Fees liability the lack of adjustment to the Inheritance Tax threshold means far more families will fall into the net by 2018/19 This will result from the rising house prices and the freezing of the threshold.
‘Proper planning through Wills and Family Trusts is essential to retain what has been built up over a lifetime of work ‘concluded David.