Pension Changes

Thanks to the changes in pension legislation that came into effect in April 2015, those who have defined contribution pension plans have more choice available to them than ever before. When they reach 55 they have a variety of options; they can leave their pension plan untouched, purchase an annuity, take an adjustable income (flexi access drawdown), take their cash in installments (uncrystallised funds pension lump sum), or take their entire pension pot in one lump sum. Many people are still finding the options open to them confusing and some are making choices that may not be the best options for their circumstances. Here’s some general guidance on accessing your pension.

Some people are withdrawing considerable sums from their pension and putting the cash into a deposit account. With interest rates low and inflation rising, this will erode the value of their savings. Options like income drawdown allow you to take the amount of money you need, leaving the rest invested in your fund.

Taking your whole pension pot as a lump sum could be a very expensive mistake. Although the first 25% will be tax-free, the rest will be added to your income for that tax year and could mean that you find yourself paying a much higher rate of tax and you will be left with a lot less money for your retirement years.

Don’t be tempted to take high levels of income from your pension, or withdraw large lump sums or make choices that will help your family more than you. When making decisions, you need to think about your income needs for the rest of your life and possibly your spouse too. With life expectancy on the rise, you could have many years ahead of you.

Before the rules were introduced, it was in effect compulsory for most people to take an annuity, but this is no longer the case. Annuities have become steadily less attractive as rates have dropped substantially.Your pension pot is, after your home, probably your biggest asset so it makes sense to get good advice when you’re thinking about taking money out.