Pension Advice

Pension Advice

The rules about how you can use your pension savings in retirement are changing in April 2015.

The Pension Freedom reforms announced by Chancellor George Osborne in 2014 will give you greater power over how you spend, save or invest your retirement pot. Significant changes include:

  • removing the need to buy an annuity to provide income when you retire
  • enabling you to take a single tax-free lump sum worth 25 per cent of your pension pots with the rest taxed as income afterwards.
  • axing of a 55 per cent ‘death tax’ on pension pots left invested.

The idea is that pensioners will be able to make as many withdrawals as they like so that they will be treating their pensions as a bank account. But, each time a withdrawal is made, only 25 per cent is tax-free; the rest is taxed like income.

The changes don’t apply to those with defined benefit (final salary) pensions which provide a guaranteed income after retirement. Instead, the changes apply to people with defined contribution (often called money purchase) pensions that are made up of contributions from both employer and employees.

Help and Guidance

If you are reaching retirement from April 2015, you will be able to get free guidance to help you understand what you can do with your pension pot when you retire. This is being provided through your local Citizens Advice Bureau and will be free to you: the service is funded through levies on financial services companies. You will also be able to get guidance over the phone from The Pensions Advisory Service.

Your advice will be in the form of free face-to-face guidance sessions during which advisers will endeavour to help you understand:

  • the different pension types and how they work
  • your options for what you can do with your pension pot
  • what will be tax-free and what will be taxable.

However, there is some concern in the financial services industry about the quality and depth of the advice that will be available. Professional independent financial advisers have to undertake qualifications and approval from the Financial Conduct Authority before they can begin to provide advice – but this does not apply to free guidance provided through CABs.

The area of pension drawdown and retirement funding is a complex, and has grave consequences if incorrect advice is given – even if it is with the best of intentions.