We seem to have enthusiastically embraced pension freedom! Recent figures show pension withdrawals in the 2017-18 year were worth £6.7bn, the highest figure since the pension freedoms reforms were introduced in 2015.
Before the change in legislation, the majority of pensioners would purchase an annuity with their pension pot, which would guarantee them an income for life. The pension freedoms now mean that those over the age of 55 have access to their savings and more choice and flexibility over how they fund their retirement.
Clearly pensioners welcome this opportunity, with a total of 220,000 making half a million withdrawals between them in the first quarter of 2018. That’s an increase of 20,000 from the previous quarter. Initially, there had been concern over isolated examples of pensioners blowing their entire savings on luxury goods and services, but responsible and widespread use of the reforms is now underway.
So although it is true that although savers have more freedom and flexibility, as a result of the reforms it does mean they also have greater responsibility. But research has shown that some savers lack the knowledge to enable them to make the right decisions regarding their pension pot. It’s now more crucial than ever to follow sound financial advice, because not everyone is comfortable or competent making decisions that will have such a dramatic effect on their financial futures. For example, savers need to be aware of moving funds out of pensions and into other types of savings that are liable to more tax, or missing out on earnings from compound investment growth.
The Association of British Insurers (ABI) has launched a five-point plan that’s aimed at creating greater engagement between financial and pension advisers and their clients so that pension savers can get more closely involved with their retirement options at a much earlier point in life. The main points are:
- Tailored communications throughout a saver’s life
- A mid-life financial health check
- Helping people to make better use of guidance
- Improving retirement risk warnings and making them fit for purpose
- Better communications after retirement.
The ABI hopes that its five-point approach will help savers become more involved with their retirement planning and enable them to make well-informed decisions with communications and guidance.
Retirement planning is far from straightforward, and at Brunsdon we believe it is important to discuss your options face-to-face. Retirement planning is part of the wider picture of your future financial lifestyle preparation. So whether you’re about to retire or just thinking ahead, your Brunsdon Financial Adviser will be able to explain your options and what they mean for your future.
Please note that this information is for guidance only and does not constitute personal advice. Any information provided in this article regarding tax treatment or legislation is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs practice (June 2018), all of which may be subject to change and your individual circumstances may impact on these. The FCA does not regulate tax advice. Brunsdon is not responsible for the content of external web sites.