Pensions and Retirement Income
The proposed ‘retirement income’ changes contained in the Spring Budget, have made pension planning very different, to what it has historically been.
Historically, for those with smaller pension pots, an annuity was seen as the ideal, no risk solution. The returns may not have been stellar, but they did provide a solution. For those with larger pension pots and prepared to take some risks, drawdown was a potential solution.
The budget however, will totally change this.
Through the changes to the triviality rules, if someone has up to £60,000, it is now possible to take all the value of the pension, as a lump sum (split 25% Pension Cash Lump Sum and 75% is taxed at your highest marginal rate). Prior to the budget the triviality rules restricted the sum to up to £22,000 – so this near tripling in value, is a significant change.
The much larger proposed changes though, of allowing anyone to ‘draw what they like’, (which is currently called ‘Flexible Drawdown’) is currently in the consultation stage and it is intended, will become law from 6th April 2015.
This does not mean Annuities are either inappropriate or have been poor value – for those individuals with particular needs (poor health being a good example) – annuities have been and will remain a suitable solution.
For everyone else, ‘Flexible Drawdown’ may have significant benefits – but equally greater risks – namely in drawing the money down too quickly – and running out of money.
The value of advice is therefore far more important now, than what it has been historically.
In other words, with the purchasing of annuities and the Drawdown rules restricting what can be taken as income (for the bulk of people); this has protected people from running out of money. Unless the proposals are changed significantly, from the 6th April 2015 that safety net will be withdrawn.
In addition, for those individuals within a few years of retirement, there are potentially significant tax benefits of making pension contributions, sooner rather than later.
This is therefore an ideal time to review your pension funding and retirement income options - please contact us for a no-obligation meeting and to receive your copy of our ‘Pension and Retirement Income Changes Guide’.
The above is for general guidance only and should not be taken as a personal recommendation.