The Countdown to Pensions Freedoms

What actions should you take?

The 6th April 2015 heralds the onset of the biggest and most far reaching changes in the pension system’s history.  With these freedoms, come responsibilities; it’s now your choice whether retirement is the longest holiday you have ever had or the longest period of unemployment.

It is down to you whether you have a ‘Lamborghini moment’ and blow the lot on an extravagance; then regret it for the rest of your retirement when you cannot afford to heat the house in winter. Pensions are designed to provide income in retirement. Therefore it is essential for anyone approaching retirement to stop, seek advice and plan how this investment is to be used.

People tend to under-estimate their longevity. Retiring at 60, most pensioners are likely to have to fund another 25 years, without clarity on how the investment markets will perform, and the impact inflation will have on their savings and the cost of living.  

The new rules provide the opportunity to micro-manage your pension pot, with the requirement to purchase an annuity being removed. From the age of 55 you will be able to withdraw monies from your pensions, the element over 25% of the fund being taxed at your marginal rate.

Pensions have now become a focal point of estate planning – the new rules allow pensions to cascade down the generations without big tax charges. 

It’s hoped that people who have purchased a pension in the past will be able to sell their annuities for cash.  But before you book the cruise, just pause.  

These ideas will be consulted on over the next 12 months and a market created.  It is unlikely that you will get the amount you handed over, less any tax free cash or income you have received.  Any purchaser will want to medically underwrite you, establish how long they expect you to live, charge you administration and factor in their profit margin.  You are likely to get back considerably less than you expect.  

There is one certainty: that those meddling politicians will move the goal posts. It is essential to ensure that your financial plan is robust enough to withstand those fluctuations.  These changes continue to make the pensions landscape complex. But what you can do to make it simpler is create a financial plan. 

I believe the first rule of investing is don’t. Invest in the planning and ensure that your retirement is a holiday, not unemployment. We would like to help you achieve this holiday and your aspirations.

For more information, or to arrange an appointment, call 01246 560570 or email info@bannerjoneswm.co.uk.