Can anyone remember when Pensions Freedom came in? Just me? Apparently not. The Financial Conduct Authority have just conducted an outcome review to see how pension providers have adapted to all the changes. This has been delayed because of the “awfulness” until February 2021.
As a financial planner (and a person who will retire one day) I think Pensions Freedom is a good thing and I will be celebrating! Why?
The best way to explain is to look at the “old world” and compare it with the new shiny “Pensions Freedoms world”.
- Unless you had fixed income of over £20,000 per annum (from State Pensions/Annuities/Defined Benefit Pensions) you were limited to how much you could take out of an invested pension. Essentially the rules didn’t allow you full access to your own money.
- The bulk of people opted for an annuity – where essentially you get to retirement age and take the pot of money built up in an invested pension arrangement and “shop around” for the best level of risk free income from an annuity provider. These are still around by the way and can be appropriate in certain circumstances.
New “Pensions Freedoms” world:
- You can opt to take any level of income you like from your invested pension. You can take the whole lot. Remember “Lamborghini” headlines. Whilst this is true it’s important to take care. You are taxed on the level of monies removed and obviously you don’t want to outlive your money – the other way around is usually a better outcome.
- You can still opt to buy an annuity – or even do part drawdown/part annuity.
Too much choice can sometimes be unsettling. How do you know that you are making the right choice for your situation? What if you run out? What if you die?
What if someone could “model” your financial future using both options and you were able to look at the impact of both options.
What if you could have a frank discussion with someone who is qualified to spell out the impact of different options and advise you which one would be most suitable for you? We adopted some lifestyle cash flow planning software over 5 years’ ago and don’t feel that you can advise clients on these options without it.
If you are feeling unsure about your pension options and need to speak to someone you can trust to give advice which is personal to you, get in touch.