It has been five years since the then Chancellor of the Exchequer George Osborne announced the Pension Freedoms in his March 2014 budget.
This was hailed the biggest change to pensions in a generation. Under new rules, anyone aged 55 and over is now allowed to take their entire pension pot as a lump sum, paying no tax on the first 25 per cent with the rest being taxed at their personal income tax rate.
According to statistics from HM Revenue, since the announcement came into power in 2015, over £28 billion GBP was flexibly withdrawn from pensions.
Scheme members can take their pension benefits in several ways:
- one or more payments a year for some years
- several payments a year over a shorter timeframe
- the full value of the fund in one large payment
Here at Float, we encourage individuals to use new pension freedoms but cannot stress enough that this should be done with careful consideration and wisely. Pensions freedom places great responsibility on individuals, the majority of whom won’t be familiar with the retirement income landscape. There is much at stake!
When faced with a range of choices, there is a risk that one bad decision can negatively impact your life-time savings and fortune. To protect it, you should always seek independent professional advice.
It’s really important to do thorough research, as all your pension assets hinge on the quality of the advice that you receive. But most importantly of all be wary of scammers!
Peter Deane, co-founder at LowerMyCharges, said: “Remember that the purpose of a pension is to provide income in retirement and this should always remain the primary aim.” He added: “Don’t sacrifice long term retirement investment planning for short-sighted benefits.”
Pensions freedoms should be used to achieve more flexibility around the choice of how and when to take benefits but not at the expense of securing a regular income in retirement or semi-retirement.
Some responsibility should be also placed on employers. Financial education and accessible financial advice are crucial on all levels.