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What do the April 2015 Pension Reforms Mean For You?


By The Orchard Practice

From April 2015, there will be fewer constraints on what you can do with the pension savings you have built up in any personal pension schemes you have paid into during your working life.

As well as deciding if you would like to take any tax-free cash from your pension pot, your main options are:

  • buying an annuity
  • using drawdown
  • triviality
  • creating a solution for yourself that combines some of those options.

Buying an annuity

When you purchase an annuity you give an insurance company your pension savings, and they pay you an income every year for the rest of your life – guaranteed.

Using income drawdown

With an income drawdown arrangement, you leave your pension savings invested, but take an income from them.

Income Drawdown carries significant investment risk as your future retirement income remains totally dependent on your pension fund performance. You should remember that if you access your tax free cash early, the benefits will be less than if you wait until your planned retirement age.

Therefore pension release may only suit a limited number of people.

Triviality

If you are 60 or over and the value of one of your pension pots is under £30,000, you may be able to take the full amount in cash immediately. You may also be able to take up to three small pots of money up to £10,000 each (£30,000 in total) entirely in cash.

Great choice from April 2015?

You’ll be able to take everything out from April. Before you do, there are some important things to consider:

  • Will I pay lots of tax? The decisions you make will have tax implications for your retirement income.
  • Where will my income come from? If you decide not to buy an annuity, you will have to find a way to manage your money so that it lasts you for life.
  • What kind of income do I want? Would you like that income to increase each year to offset inflation? Do you need flexibility to vary your income?
  • Am I happy taking investment risk? What will you do with the money?
  • When I die, what would I like to happen to my money? The treatment of your money on death differs depending on the decisions you take.

Image credit: Telegraph