Pensioners with Lamborghinis? It won’t happen . . . .
The most astonishing thing about the Budget shake-up was that as from April 2015 pensioners can take their entire pension “pot” in cash. This, not unexpectedly, led to certain large insurance companies suggesting that pensioners would run out of money. They would act like lottery winners and blow the money on fripperies.
But for every lottery winner who blows all the cash in 18 months, there are 99 who put the money away somewhere safe. These are the ones you never hear about, because they just get on with their lives. These are the ones whose experience has given them a modicum of wisdom.
These pensioners will have read that although they can take all their pension “pot” in cash, only the first 25% will be tax-free – as at present. The remaining 75% will be taxed as the top slice of their income of the tax year in which it is taken. So a substantial lump sum – enough to buy a Lamborghini, say – would probably be taxed at 40%.
And there is another catch. This lump sum now becomes part of the pensioner’s estate for Inheritance Tax purposes. What with his holiday home in Devon and his buy-to-let properties in Epsom, the pension lump sum could be taxed at another 40%.
Hmmm. So if the pensioner does his sums, he will realise that while the money stays in his pension fund, it is free from Income Tax, Capital Gains Tax and Inheritance Tax, but he can still get to it if he needs nursing home fees in his old age. These are powerful incentives to keep the money in his pension fund.
Anyway, I wouldn’t buy a Lamborghini. I’ve always wanted a Ferrari.
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