Posted by: nmarsh April 17th, 2015
Just 10 days into the new Pension flexibilities being in force and we might be forgiven for wondering what all the fuss was about. The press has moved on to the impending election and analysing all of the various amalgamations of parties that could be left in power.After the election, could we be facing more reforms to get our heads around? Who knows?!
While we wait for the results we thought it might be useful to post a quick reminder of the new rules.
From April 6th 2015, members of non- final salary Pension Schemes are intended to have complete flexibility as to how they access their savings once they reach the Scheme retirement age. As we have seen in the national press this new flexibility has been met with both positivity and also a sense of nervousness as to what exactly this might mean.
The previous rules meant that, after taking a tax-free lump sum, funds were either directed to an annuity which would provide a guaranteed income for life or to a drawdown arrangement that provided flexibility on when the funds were taken but in many cases capped the amount that could be accessed at any one time.
The new rules still allow for the provision of a tax free lump sum but there will no-longer be a cap on the amount of income that can be taken. Annuities will remain an option for those looking for a guaranteed income. This has widely been publicised as turning Pension pots into bank accounts although at this stage it is unlikely that Pension Scheme administrators will offer that level of flexibility.
Final Salary Schemes will continue to pay the benefits which are defined within them and individuals will only be able to access the new flexibilities if they first transfer their funds out of the scheme and only after receiving professional financial advice
In addition to how a Pension pot can be taken there are also changes being made to the way in which remaining amounts are taxed on death. Although there is not enough room here to layout the new rules in any detail it is clear that Pension Savings may, in many cases, provide an efficient way to pass on wealth to the next generation.
Our finances always require careful planning and this is certainly no less true with the changes described. Having full flexibility to when we can access money sounds excellent on the face of it but does of course increase the chance that we run out.Each individual case will be different but it will be key to assess how much we have, how much we need and how long we might need it for.
Understanding that these changes may be disconcerting to some the government has put into place a Guidance Guarantee. Although not fully rolled out the Pension Wise website is up and running (www.pensionwise.gov.uk) and provides a useful resource for those needing further detail on how they should approach their retirement finances.
For those with more complex situations speaking to an Independent Financial Advisor such as Ashlea is likely to make a lot of sense. Our first meeting with potential new clients at Ashlea’s expense – this allows us to get to know each other a little better but more importantly means that we can evaluate together whether paying for advice is the right thing for you.