Who stands to benefit most from the changes to pensions?

Welcome to the second in our series of blog posts which aims to explain the upcoming pension reforms (due to come into effect April 2015) and the varied implications they might have. If you haven’t read our introduction to the 2015 pension changes yet, you can do so by following the link.

Up until recently people with Personal Pensions or Money Purchase Pensions reaching retirement age were faced with a decision of either taking an Annuity or leaving their money invested and taking income using a Drawdown type of arrangement. From April 2015 both methods will remain available but those not wanting to use either route can access the fund directly by taking a series of withdrawals.

Unlike an annuity, or a drawdown scheme whose income was capped, the new ways of accessing the pension fund will mean that people can make a conscious decision to run their fund down. For example, someone with a pension fund of £30,000 could opt to take £5,000 or thereabouts a year over 6 years thus fully exhausting the fund over that period. Some of this could be taken Tax free and some will be subject to Tax at the marginal rate.

It can be argued that those who have smaller pension funds will stand to gain the most, at least in the short term. The problem these people will have to overcome is the big question of ‘what happens after my pension fund runs out?’

Politicians seem to be suggesting that the new guaranteed minimum pension (to be introduced in the future) of around £148 per week will be enough for people to live on. But will it?

For those who seek to pass down their pension fund to their spouse, children or grand-children, the new rules will certainly help them achieve this goal but only when a suitable product is put into place.

From April 2015 the choices will be more varied. With choice comes complexity. With complexity comes risk; risk that the wrong decision could be made and in some cases this may be irreversible or at least costly.

For those seeking help and guidance with the options available to them when taking their pension, BLM’s ‘At Retirement’ service offers to guide clients through the options and complexities. Contact us for advice based on your individual circumstances.

The next post in our series of blogs about the 2015 pension changes will consider whether you can cash all your pension in (and buy a Lamborghini).

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.