Are you aware of the pension changes coming this April 2015? You may remember the 2014 budget, which announced many financial changes for us to look forward too. One of the most significant alterations related to peoples pensions. Chancellor George Osborne announced the biggest pensions overhaul in over a decade, changing pension freedoms and flexibilities for everyone.
From April 2015, anyone aged 55 and over will be able to access their defined contribution pensions and use those savings as they choose. Defined contribution pensions build up a pension pot using your contributions and your employer’s contributions (if applicable) plus investment returns and tax relief. It will be possible to take their entire pension pot as a cash sum and they will no longer be obliged 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).
Alternatively, people with pensions can still buy an annuity if they feel like it is the best option for them.
There is the possibility that people may be tempted to overspend and be left with little money into their later years. The Chancellor said he believes people can be trusted to use their money responsibly, and should have the freedom to use it whenever and on whatever they see fit.
The changes brought in mean that from April 2015, the 320,000 people who retire each year with defined contribution pensions will have complete choice over how they access their pension.
The Chancellor has also promised that anyone who may be effected by the pension reforms will be offered face to face, impartial, free guidance on the various new options they will have available to them. There has also been a website created, which aims to help people who do not want to or cannot receive guidance face to face. The financial services industry has been given £20 million by the government to deliver this service, and created Pension Wise. The Pension Wise website focuses on six steps that users should take in deciding how to turn their pension pot into retirement income.
There have been fears in the industry that this service will be ignored, previous free pension guidance services offered by Royal London and Legal & General in 2014 both had an extremely small take up rate.
If you are approaching retirement age and feel you are not pension ready you may want to visit the governments Pension Wise website, or seek regulated advice from your financial adviser in view of the potential Tax implications that could apply. If you do not have a financial adviser, you can give us a call on 0800 526 249.