Changes to Pension Laws

From the 5th of April 2015, the government has changed the way you can use your pension and this has seen the biggest change to the way you can use your money in retirement.

In the past, you were required to purchase an annuity, which provided you with an income. This was a fixed amount and paid monthly to insure that you had sufficient funds to continue to live. In addition, you were also allowed to cash in up to 25 per cent of your pension, tax-free.

Now, under the new rules, you are allowed to use 100 per cent of your pension pot in any way you choose, although this amount will not be tax-free. As before, this tax-free sum remains only 25 per cent of your pension pot.

There are concerns coming from the pension industry though. Some of these are that there are additional costs associated with cashing in a pension pot. It has not been factored and additionally, there is a lack of advisors to talk to retired people about their options and the impact of cashing in the whole of their pension pot.

The government has pledged to put into place free and impartial advice for all retirees wishing to discuss their options. However, claims have been made that there are not enough advisors because we are close to a General Election. Therefore, rules around the promotion of policies of the existing government are stopping a big advertising campaign from happening.

Warnings came from Australia which implemented a similar scheme some years ago. They said that people who had cashed in their pensions were running out of money and that they were now considering implementing a necessity to purchase a product that would guarantee a basic monthly income as a minimum.

Citizens Advice have prepared themselves across England, Wales and Scotland to offer guidance to any worried pensioners but this cannot replace proper financial planning and advice about the implications of cashing in your pension.

Be aware of the tax implications of cashing in your pension, and make plans to keep a steady income remember, there is no rush to make any decisions right now.

If you would like to speak to us about this article or any issues regarding your retirement planning please contact Gareth Horner on 01264 353411, or email us at info@bsandi.co.uk or complete our Free Online Enquiry and we’ll be in touch with you shortly.