Planning on buying a Lamborghini following the Budget? Think again…
Doncaster, South Yorkshire (PRWEB UK) 30 April 2014 -- The March Budget has been described by some as the biggest and most wide ranging set of pension reforms in over 100 years. Its focal point is the plan to allow people from April 2015, to withdraw their pension pot as a cash lump sum instead of investing in a pension plan. Before the announcement people were required to purchase an annuity, however under the new rules they will be allowed to use the cash in any way they like.
It prompted Steve Webb, the pensions minister, to declare that people should be free to blow their pensions on buying a Lamborghini if that’s what they wish. His words create a striking image, however a future where the roads of Britain are overflowing with retirees driving Lamborghinis doesn’t seem to be on the horizon any time soon, as My Pension Expert explains.
As Mr Webb rightly pointed out later, the average pension pot size is £25,000, this means not many people would be able to buy a sports car even if they wanted to. However, those with significantly above average size pots may also find their chances of purchasing a Lamborghini dashed, due to the tax implications of stripping out a pension fund.
A brand new Lamborghini Huracan, which was unveiled just before the Budget was announced, costs around £165,000. My Pension Expert figures have shown that someone who earned £50,000 that tax year, who was looking at stripping out their pension to buy the car in question, would need a pot size of £300,000. Of that pot, a staggering £134,000 (about the cost of a Porsche 911) would be lost to taxation, meaning that of the original fund only 55% of it would be returned. This is because a large amount of the pension fund would fall into the high end tax brackets of 40% and 45%.
The reality of the situation is that the sheer size of the pension pot required to purchase a Lamborghini will mean that it will remain a fantasy for the majority of retirees. Whereas the scale of the taxation will prevent it from being a feasible option for those with the funds to do so. What this does is highlight the increased importance of taking advice, whatever your circumstances, when evaluating your retirement options following the liberating Budget changes.
While no-one can dispute that greater amounts of choice and flexibility are good things when deciding what to do with a pension fund. They do however open up pitfalls that an adviser can help a person successfully negotiate. An advisor will work out what the best possible use of a pension fund would be to suit an individual’s unique needs. They would also offset risks like outliving a fund and limit the amount of taxation that is paid. So while the majority of retirees may not spend their retirement in Lamborghini’s, if they seek advice, they will be able to spend it with the peace of mind that they have received the absolute maximum that their pension pot can provide, whatever its size.
Scott Mullen, My Pension Expert Ltd VPR, +44 1302453009, [email protected]
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