The radical overhaul to pensions proposed in the March 2014 Budget was given the go ahead by government this week.
From April 2015 those aged 55 or over will be able to draw up to their full pension pot on retirement, with up to 25% usually available as a tax-free lump sum, and any further withdrawals subject to Income Tax. The changes mean that current rules on pension drawdown will be abolished.
The reforms will apply to both those who have saved into defined contribution and defined benefit schemes, not just those who pay into defined contribution schemes as previously announced.
Impartial guidance will also be made available to retirees online, via telephone or in person, although concerns were raised over whether this would be specific enough to help retirees make informed decisions over how to spend their retirement fund.
Planning is vital
Kate Turner, Head of Advice Policy at Towry said:
“It’s vital that retirement funds aren’t just frittered away - everyone should have some form of long term financial plan in place. This needs to be tailored to each person’s specific goals and ambitions, so individual personal financial advice is essential, especially given the large number of options available to those approaching retirement.
“This advice will often need to go beyond the level of detail provided by the likes of the Money Advice Service (MAS) and the Pensions Advisory Service (TPAS).”
The reforms will make the need for financial planning in advance of and during retirement more vital than ever. Turner went on to explain:
To be effective, a financial plan must be developed early in life to make sure sufficient savings are in place to fund the retirement that you aspire to. Regular advice is also required during your retirement to review how you are taking your pension income, how best to use your remaining savings and the impact of any new legislation on your finances
“The Chancellor ruled in April’s Budget that no one should have to buy an annuity but this doesn’t necessarily mean that annuity products are not the right solution. They can still be the right choice at a given point in time during retirement, especially if the individual wants and needs certainty of income; if they experience ill health, their partner dies or their attitude to risk reduces, for example.”
The age at which you can access your pension fund is scheduled to rise from 55 to 57 in 2028.
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