Pension freedoms

Accessing your entire pension flexibly

How your future looks will ultimately be determined by having the right vehicle in place for your retirement. As you approach retirement and start thinking about when and how to take your money, it’s a good idea to check what pensions you have and what they might give you. The rules around pensions are continuously changing, which means it’s essential to receive regular professional advice on how to build up and invest your pension effectively.

The concept of an ‘ageing population’ may feel overused, but the fact is that advances in medicine and generally improving living standards are combining to increase how long we can expect to live. The backdrop to this is a tightening of the welfare state, including the basic State Pension. We need to make our own provision if we are to have any chance of a comfortable retirement.

Radical changes to pensions
On 6 April 2015, the Government introduced the most radical changes to pensions in almost a hundred years. Individuals from the age of 55 with a defined contribution pension were for the first time able to access their entire pension flexibly if they wished.

The pension freedoms, announced by the then Chancellor, George Osborne, in Budget 2014 gave over-55s full control of their retirement savings. Instead of being required to buy an annuity with a money purchase pension pot, individuals aged 55 and over could take their money however they deemed appropriate. Generally, 25% of the pension pot is tax-free, and the remainder subject to Income Tax at the individual’s current rate.

The majority of people at retirement prior to the introduction of pension freedoms had only one realistic option, which was to buy an annuity. Today, you have a much greater choice about how you spend your pension – but there are also greater risks involved if you get it wrong.

Make sure your pension savings last
Pension freedom means the responsibility is up to you to make sure your pension savings last as long as you need them to. Typically, this could be between 20 and 30 years, or even longer, which is why it is essential to obtain professional financial advice. Retirement has always been one of the biggest financial decisions you will make in your lifetime, and it is now much more complicated.