The April 2015 Pension Changes and How They Will Affect You

Following the Budget statement in March 2014, the Government unveiled plans to completely overhaul the UK’s current pension system.

From April 2015, whatever the size of your defined contribution pension pot, you are able to take your pension income however you want, subject to your marginal rate of income tax in that year and as long as you are 55 or above. You can still take 25% of your pot tax-free, as a lump sum, at the point you access your pension. People who continue to want the security of an annuity will be able to purchase one and people who want greater control over their finances can drawdown their pension as they see fit.

When compared to the new freedoms, the old system prior to April 2015 seems much less flexible for savers when they come to access their defined contribution pension during their retirement. Under the old pension rules, savers were charged 55% tax if they withdrew the whole pot and three quarters of people had little option but to buy an annuity (an insurance product where a fixed sum of money is paid to someone each year, typically for the rest of their life).

There are, however, potential problems for you to consider carefully under the new system too. Many charitable bodies, such as Age UK, are worried that pensioners are tempted to ‘blow the lot’, under the new freedoms. Research suggests few actually will, although the risk does certainly exist, and that the problem could actually be of a more acute nature.

The challenge many pensioners will face will be one of planning. With unblocked access to their pension pots, newly retired people will be faced with a logistical nightmare. Where previously an annuity could guarantee them an income for life, however long that may have been, the potential for a better deal now exists, but with the added risk that the pension pot could be exhausted too soon.

For pensioners who have saved long and hard for an ideal lifestyle, suddenly this could become a very tricky situation. Long-desired holidays may suddenly seem like a risk, that ideal retirement property an extravagance they cannot afford, helping the family may feel unpleasantly optional.

The answer to all of those problems is extremely good planning. With a full financial plan, pensioners can enjoy everything they wanted to experience in retirement, whilst having a contingency for a long and happy life after they finish work.

If you feel as though you would benefit from such a plan then we can help. No matter whether you are at retirement now, or some way off yet, we can help you to put in place the plans that will make all the difference to you in later life. You can request a call back here and we will be more than happy to have a no obligation discussion about your current circumstances.