Much has been written about the new dawn of pensions flexibility ushered in by the Chancellor in his last budget.
Most pension investors feel that these changes are just and long overdue.
There were, however, stern noises from certain quarters – Labour’s Ed Balls among them. They feel that the overwhelming temptation for many would be to rush out and spend their money on hugely expensive sports cars and exotic once-in-a-lifetime holidays.
Incidentally, only around 2500 Lamborghinis are sold each year. That’s not enough to go round so get your order in early if you’re tempted…..
New rules summary
- You are no longer obliged to buy an annuity when your pension plan(s) mature.
- You can continue contributing to a pension fund after age 75.
- You can configure and access your defined contribution pension plan to suit your needs and tax planning requirements.
Although the new regulations do not apply to public sector final salary schemes they are undoubtedly beneficial for those individuals who do not need to access all their pension pot because they have other investments and funds to draw on.
Risk
However, both this category of pension holder and those with smaller pension pots will have to think about the need to manage their investment strategy and income in the most tax-efficient way in order to safeguard and maximize funds.
This represents a significant level of risk taking.
Tax
Also you do not want is a shock from the taxman when you recalibrate your pension pots.
For instance, make sure it’s not such a large sum that will make it subject to income tax being levied at 40 per cent.
Better to withdraw funds in smaller, incremental amounts annually over a defined period. You could also convert part of the lump sum into an annuity.
Or perhaps there are other funds you can use even more tax efficiently?
There’s no need to rush to deplete your pension pot entirely. It will be with you for the rest of your life and what’s left can be passed on your family.
Annuities
The new measures do not affect those who already have an annuity who are locked into that arrangement for the rest of their lives.
Bear in mind that it is unclear as yet whether the changes will make for new, improved annuity deals being offered. Or whether less demand will mean insurance companies offer less and less good deals.
It may actually force annuity companies to offer more variety of financial product for pensions, such as retail bonds and Maximum Investment Plans (MIPS).
Annuities still have an important role to place. For some it will be the only sensible option, for others a way to build in a known regular income that covers the essentials come hell or high water.
Our view
In summary, the main change is one of choice, meaning we have more control.
That’s the way it should be, we have worked hard to build up our pension pot.
That alone will stop most of us spending it irresponsibly.
We specialise in pension, investment and retirement planning. We have 20 years’ experience and are well placed to help you make the most of your money.
Why not drop us a line advice@www.townclosefp.co.uk or give us a ring 020 7993 4898.
Our initial consultation is both fee and obligation free.