Pension changes 2015 – What do they mean for you

Alongside the usual intricacies associated with planning for the financial year end, 2015 will see the introduction of some new, important changes relating specifically to the field of retirement saving.

The most significant of these changes will be that, from April 2015, you can take as much cash as you like from a ‘defined contribution’ pension, with no obligation to buy an annuity. You can also get that cash back under much more relaxed and tax-efficient terms, with the first 25% of any money you withdraw being tax-free.

The reforms have been introduced on the back of research that suggests some 12 million people aren’t saving enough for their retirement. Furthermore, with four out of five aging workers underestimating their lifespan, many Britons could be looking at up to 30 years in retirement, a statistic that could place increasing pressure on pension pots to stretch much further than previously anticipated.

Whilst the government’s auto-enrolment programme signalled a step forward in encouraging a culture of long-term saving by those in employment, those of us investing into private pension schemes will need to be ever more vigilant when it comes to the handling and planning of our retirement savings. The situation has been further squeezed by the Chancellor’s decision to reduce the lifetime pension allowance to £1m, a measure which has been hailed as ‘counter-productive’ and a ‘disincentive to save as much as possible for retirement’.

That said, the new freedoms enabling us to access and spend more of our hard-earned money as we see fit can only be described as a positive thing; nevertheless, concerns have been raised over the risk of people ‘rushing in’ to access their savings and making poor decisions that could cost them dearly later in life, either through paying more tax than is necessary or running out of money entirely.

The new system offers both benefits and risks. With a plethora of information being pushed out via various media channels, we have put together this brief overview to highlight some of the key implications that the new pension reforms may have on your retirement plans.

Following the new freedoms, you can manage your pension funds in a number of new ways:

• Access your money like a bank account, dipping in and out as often as required and taking 25% of it tax-free.
• Keep the money invested and drawdown an income from it as and when you need.
• Pursue the annuity route, converting some or all of your money into a guaranteed income for life.
• Cash in the whole lot and invest it somewhere else, such as in property, the stock market or cash savings.

You will still receive tax relief from the government on the money you pay in at your current rate of income tax however…..

• If you withdraw cash too quickly you could be pushed into a higher tax bracket and, with 75% of savings being liable to tax, you could end up.
• It may not always been the best option to withdraw your savings, even if you keep within the 25% tax-free bracket, as invested finds still represent great tax efficiency.
• Any drawdown will be classed as income for that tax year and will likely have an impact on your current tax code. Be sure to contact HMRC and ask for a document confirming your tax code to avoid having to reclaim overpaid tax further down the line.

As with any area of financial planning, it is always recommended to seek professional advice. At Finura Partners, we will always endeavour to uncover new retirement products coming onto the market and implement fresh ways to make your money go further to ensure you get the most out of your savings, whether you have plans to spend it or keep it invested.

If you would like to discuss the wider implications of the forthcoming pension changes and how they affect your long-term plans, please get in touch with your adviser.