This year, radical new UK pension rules were announced to allow pension holders the chance to take their entire pension at retirement rather than take out an annuity, an income for life option. Has this turned the world of annuity upside down? Before the budget announcement, the only draw down was a 25 per cent tax free lump sum at 55. Now with the new pension rules, it has opened the door for pension holders to take a much larger lump sum when desired.
Let’s look at the changes. As of April 2015, anyone from the age over 55 will be able to take 100 per cent of their pension as cash. This will apply to both workplace and personal pensions. It will not however apply to final-salary pension schemes. The ability to take a 25 per cent of your pension free from income tax still remains. The remaining draw downs will be subject to income tax.
But won’t this open the door to increased consumer spending or using the money for the wrong reasons? Research from Friends Life has shown that only 7% of us will take all our funds out in one lump sum. The temptation is to spend it rather than invest it wisely. The key is not to spend but invest wisely. Pensioners do not have the time or energy to make up losses so it’s vital that good choices are made. Low risk secure investments ensure the preservation of capital which a pensioners profile matches.
Peter Evans of Barrington Howe says “We have spoken to a number of potential clients over options available to them once the new pension rules change next year. With our products and solutions, pensioners could actually make a significant gain financially and benefit from the new pension rules. With sensible pension planning, pensioners could not only access 100 per cent of their pension but can also receive a greater interest compared to the average pension. Our products are already showing incredible returns of 100 per cent under six years!”
How does this effect an annuity? Peter went on to answer “We have already seen annuities drop from the institutional pension companies such as Standard Life. We would expect to see it drop further across a number of pension companies”