Pension Freedom Rules

How can you make the most of the new Pension Freedom Rules to secure the future you desire?

The public purse is stretched and good tax breaks are few and far  between.  If we factor in historically low interest and annuity rates which  are  decimating savers returns, then ensuring you are able to make the  most of the new pension freedom rules is vitally important.

It may simply be your priority to ensure there is sufficient capital and  income to secure the future you want for yourself and your loved ones in  retirement. Alternatively, your objective may be to mitigate against  Income  Tax, Capital Gains Tax or Inheritance Tax. Either way, you should now be  giving much more consideration as to how the use of  pensions can assist you  in these areas.

The changes essentially affect three distinct sets of circumstances:

  • Whilst you are alive
  • If you die before the age of 75
  • If you die age 75 or older

What has not changed, is that you will receive tax relief on personal contributions at your highest marginal rate, though this may be reduced at a future budget. The funds will grow largely free of tax.

So what has changed? The Government has decided you should be able to decide, and control, how your pension funds should be used to best meet your needs and circumstances, rather than have the State continue to dictate this to you.

We have all read the headlines about people rushing out to cash in their pension pots to buy a Lamborghini. Notwithstanding the fact that most of us of pension age could probably not get in and out of one unassisted, it is likely that, other than a few foolhardy souls, the vast majority of individuals will make prudent decisions relating to their needs and circumstances, as long as they are aware of all the salient facts at the time. Which is the crux of the matter!

The Government has put into place as a conduit for people being able to secure ‘generic information and guidance’ as to their options and the issues to consider. However, it is not ‘advice’ tailored to the needs, desires and circumstances of the individual. There are two options:

  • Use the guidance services, hoping that you have understood and properly applied the information given, making your decision accordingly and living with the consequences if you get it wrong, OR
  • Pay for good independent advice to help ensure you have made the right choice for you.

In our next article, we will look at the options of how to draw benefits relating to those with personal pensions or employer money purchase pensions in relation to the new pension freedom rules.

Written by
Karl Lavery