Don’t let freedom go to your head

by Mike LeGassick, Independent Financial Adviser, Manning and Company

The recent Budget announcement on pension reform heralds a seismic shift in the personal pensions market.

Until now those who have diligently saved into their pension pot have had certain limitations imposed on how it may be spent, and when.  As a result most pension pots have had to be spent on an annuity – a form of insurance policy which provides a guaranteed income for life.

The Budget means that as from April 2015 you have much more freedom.  You will be able to invest it in other ways; or take the whole pot in cash if you like (although still not until you are 55, unless you’re prepared for a tax penalty). 

After the first tax-free 25%, there’ll be tax to pay on the rest.  But the point is you will have choice, like never before. 

But before we revel too much in the freedom, let’s remember that with it comes responsibility. 

The point of having a pension pot is to fund your retirement: all of it.  Certainly there will be some cases where it may be appropriate for an individual to spend their pot.  But once it’s spent… it’s spent, and there will be no opportunity to replenish it.

The very point of the recent introduction of workplace pension auto-enrolment is to make sure that people take a serious responsibility for funding their own retirement - not relying on the State, nor the unpredictable decisions of future governments.  Spend it too quickly or unwisely, or simply fail to plan for your own potential longevity, and you could find that unexpected poverty awaits.

Talking about your life, your priorities and hopes for the future is key to making good retirement decisions. With this new freedom, that’s more important than ever. 

If you’ve started to think about retirement – or even if it’s some years away - why not call us today, and together we can start planning what this change could mean for you.