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Retirement Planning UK - How to access your pension tax efficiently - YouTube
Channel: Accounting and Tax Academy by Tony D
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in the uk if you have a private pension
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plan then currently you have to wait as
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a minimum
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until you are 55 years of age before you
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can start accessing the money in your
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pension
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without being penalized and for some
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workplace pensions this age could be
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higher
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once you get to this minimum age what
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are the tax implications of withdrawing
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your pension
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and how much can you take tax free in
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this video i'm going to cover
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a refresher on how to get tax relief on
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your pension contributions
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how you can draw down funds from your
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pension pot
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how can small limited company business
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owners take a tax-free loan
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from their pension pots and finally
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buying a lifetime annuity and taxation
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[Music]
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pensions are a powerful tax shelter so
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in other words you get tax-free
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contributions
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into your pension pot and any growth in
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your pot is
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free from capital gains tax or any other
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taxes
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in the current tax share you as a uk tax
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president
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is able to contribute up to forty
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thousand pounds per annum
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into an approved pension pot tax free
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and don't forget there is also a
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lifetime allowance currently
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one million and seventy three thousand
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per the 21
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22 tax year if you want a more in-depth
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refresher on the top
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three ways to get tax relief on your
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pension contributions
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we've done a comprehensive video on this
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which you can access by clicking on the
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link in the description box below
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at the beginning of april we granted
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early access to the accounting and tax
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academy membership site
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in july of this year we're opening our
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doors to everyone
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our members will have access to in-depth
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tutorials
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free downloads and exclusive discounts
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and the best part is it's absolutely
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free to join
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head to the link in the description box
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below to register your interest today
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[Music]
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there are in effect two common ways you
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can draw down from your pension that is
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of course once you've reached the
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minimum retirement age
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which is currently 55. firstly you can
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take a lump sum
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of up to 25 tax free
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and secondly you can buy what is called
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an annuity in other words a regular
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income
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for the rest of your life up until
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recently the amount of money you could
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withdraw from your pension was tightly
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controlled by the government and there
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is legislation
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but you now have more freedom as to how
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you can manage the drawdown of your
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pension
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for the first time you as a pension
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saver has the ability to control your
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tax bills
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by making controlled and managed pension
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withdrawals in some tax years
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in comparison to others so timing your
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pension drawdown is an available and
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effective strategy
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to help you control your tax bill
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[Music]
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so when you reach the minimum pension
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age you can move some or
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all of your pension pot into what is
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known as a flexi
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axis drawdown this is best explained
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with a common
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example paul is 56 and is still working
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as a higher rate 40
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taxpayer and has a pension pot currently
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worth 250 000 pounds
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he wants to take 10 000 pounds of his
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pension tax free for now as he has
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passed the minimum retirement age of 55.
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so he transfers 40 000 pounds into a
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flexi axis drawdown plan
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and takes 25 of the 40 000 as a tax-free
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lump sum
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equaling 10 000 pounds and leaves the
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remaining thirty thousand pounds in the
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drawdown plan
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without taking any additional taxable
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income
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so paul has achieved his objective of
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withdrawing for himself
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ten thousand pounds from his pension pot
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without having to pay any tax
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then three years later he transfers
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another forty thousand pounds into the
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same flexi axis drawdown plan
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and takes another ten thousand pounds of
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tax-free funds
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he leaves the remaining thirty thousand
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pounds in the drawdown plan along with
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the other thirty thousand pounds from
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two years ago
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now giving him a total of sixty thousand
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pounds in the drawdown plan
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so basically flexi access drawdown
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allows you to take your tax-free lump
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sum
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on its own without any additional
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taxable income allowing you to park the
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rest of the funds
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in the drawdown plan and what's more the
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sixty thousand pounds currently in
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paul's drawdown plan
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continues to grow tax-free until paul
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decides to withdraw parts
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or all of it and paul can keep doing
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this until he has drawn down all of his
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pension pot into a drawdown plan
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but you need to check with your pension
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provider if they offer a flexi access
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drawdown
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and if they don't perhaps you might want
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to consider speaking to a professional
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advisor
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to switch providers
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[Music]
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ufpls wow a bit of a tongue twister and
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bless those civil servant reformers who
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come up with such acronyms
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ufpls is similar in how it works to a
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flexi drawdown
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but there is a subtle and effective
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difference again let's use paul's
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example
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to illustrate so we know paul has a
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pension pot worth 250 000 pounds and
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wants to take just 10 000 pounds out of
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his pension
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tax-free for now so under ufpls
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paul would withdraw 40 000 pounds and
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take 25 of this tax free
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so 10 000 pounds the difference is that
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the remaining 30 000 pounds has to be
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taken as taxable income simultaneously
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he can't park it in a flexi drawdown
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plan and let's assume paul is a 40
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taxpayer in the tax year he takes the 30
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000 pounds you'll be subject to 12
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000 pounds of income tax on this
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withdrawal ouch
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so now can you see why your timing is
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crucial if you want to optimize
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if not minimize your tax bill
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[Music]
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continuing with paul's example because
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he's still working he could be subject
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to the money
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purchase annual allowance from the 6th
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of april 2017 the money purchase
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allowance was reduced to 4 000 pounds
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per annum
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but what does this actually mean so
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under ufpls
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in the previous section paul would drew
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40 000 pounds in total from his pension
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pot
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at the age of 56 and as a tax paying
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employee despite surpassing the minimum
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retirement age of 55
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he can still make further contributions
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to his pension pot
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only he will be limited to just 4 000
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pounds gross per annum
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hence the money purchase allowance this
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compares to the usual 40
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000 pounds per annum tax-free
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contribution allowance
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so just be aware of this
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[Music]
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now if you run a small business through
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a limited company you can set up and
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contribute to a pension scheme called
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a ssas a small self-administered scheme
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an ssas is a type of occupational
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pension scheme a defined contribution
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scheme typically established
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by owner directors of small limited
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company businesses
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they are very common in family-run
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businesses and are open to all employees
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and their family members
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up to a cap of 11 individuals one of the
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benefits
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of an ssis is that it allows more
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independent management of it as a
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pension scheme
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in comparison to more traditional
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occupational pension schemes or even a
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sip so as a result an ssas pension
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scheme
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can provide a commercial loan to your
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company tax-free in order to purchase an
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asset such as a new piece of equipment
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or for a variety of other commercial
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reasons but a note of caution whilst
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borrowing money from
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an ssas pension scheme may be more
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attractive
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than borrowing from a bank or financial
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institution a
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ssas pension scheme cannot give your
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company a soft loan
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with no interest payable and flexible
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repayment terms
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there are certain rules that have to be
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fulfilled in order to avoid what is
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known as an
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unauthorized payment tax charge head on
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to our free download which explains
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these rules
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in more detail nonetheless get it right
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and an ssis pension vehicle is a very
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slick way of
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channeling contributions tax-free into a
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pot
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and then using some of those funds again
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tax free to invest in your business
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[Music]
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historically the most common option for
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accessing your pension pot money
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was buying what is known as an annuity
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in other words you essentially use your
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pension pot to buy a guaranteed lifetime
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income again let's explain this better
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with
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paul's example we know he has 250 000
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pounds in his pension pot
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so let's assume paul is now 60 and no
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longer working so he decides to cash in
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on his pension
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and takes a full 25 that is 62.5 000
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pounds
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as a tax-free lump sum for the remainder
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of the 187
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500 pounds paul buys an annuity a
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lifetime income from an insurance
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company
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now annuity rates are often linked to
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interest rates and in the current
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climate as we know
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the official bank of england base rate
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is only 0.1
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at the time of this video and all-time
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low so don't expect annuity rates to be
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particularly great
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however let's take a look at what is
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available for a single person
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on a standard basis this reputable
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website
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sharingpensions.co.uk is showing rates
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of around 3.8
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to 7 dependent upon your age although
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actual rates will depend upon quite a
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few variables
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annuities are often maligned by the
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media and seen as a
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con the idea of lots of retirees pooling
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their money together
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and those that live longer than average
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are subsidized by those who live shorter
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than average and
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i guess that is fair enough but the one
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advantage of a lifetime annuity
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is just that it's for your entire
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lifetime and if you do end up living
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into your 90s or beyond
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then at least it provides you with some
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peace of mind and dare i say
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a reasonable return on your pension pot
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thanks for tuning in and i hope you find
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this content empowering and helpful
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finally
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be sure to like and subscribe as it
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really does help us to get our content
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out there
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and your support is much appreciated
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