The rules surrounding accessing pension savings have changed recently.
Annuities are no longer the automatic choice for those looking to secure an income in retirement – there are a range of options available. This includes flexible access to pension savings enabling anyone who has reached the minimum pension age (currently age 55) to draw as much as they wish from their pension pot whenever they wish.
However, many existing pensioners will have already purchased an annuity with their pension savings giving them an income for life. This isn’t necessarily a bad thing: whilst flexibility does bring wider options, there are many advantages to the annuity route as the income generated is generally secure and will never run out. It may also include an income for a spouse and other death benefits.
Flexible Access to Pension Savings
Pension flexibility has been with us since April 2015 and allows those with pension savings to withdraw funds directly from their savings – provided they have reached the minimum pension age – rather than buying an annuity. However, there are important tax considerations: most pension arrangements allow for 25% of the fund free of tax but any further withdrawals are taxed as income. This could potentially lead to pensioners falling into a higher tax bracket if they make significant withdrawals within a specific tax year, so careful planning is important.
Secondary Annuities Market
The Government recently announced that they have scrapped plans to introduce measures to allow people with existing annuities to sell their right to future income from the annuity, effectively turning their annuity into a lump sum. This may be a disappointment for some existing retirees who will now have no option but to continue to receive their annuity income.
Where can we get advice?
A financial adviser who is authorised and regulated by the Financial Conduct Authority is your best source of advice.