21 March 2014

Savers handed greater freedom on pensions

Chancellor George Osborne used Wednesday’s Budget announcement to propose sweeping changes to how we access money previously locked up in pensions. From April 2015, people reaching retirement age will be able to spend money saved in a pension however they want, rather than having to use it to buy a guaranteed income.

Carbon Managing Director, Gordon Wilson, says: “The proposed changes certainly look like great news, and my initial views are that people having a choice is extremely positive. The changes will ensure that people have greater freedom and control than ever before.

“Another benefit to pension savers is likely to be that pension providers will have to try harder to keep the money. This should translate into better value contracts with more choice and flexibility.”

The changes, which are subject to consultation, mean that pension investors who have reached 55 will be able to take the whole of their pension pot in cash when they retire, instead of having to buy an annuity to provide an annual income. Any monies withdrawn over and above the 25% tax free amount will be subject to income tax.

Gordon explains: “Annuities offer you a guaranteed income for life, and that can be very important in retirement, so they still have a place, but perhaps not for all of your money. Annuities are inflexible and don’t reflect how you spend your money in retirement.

“A mix of a guaranteed amount of income which can be topped up is often a good solution. That way you can spend more in the early years of retirement while you are active and healthy and keen to travel.”

The reforms are likely to make saving in a pension much more attractive, however there have been concerns that retired people will spend all their pension at once and end up relying on the state. Gordon doesn’t share that view.

He says: “Most people approaching retirement become increasingly cautious as they realise that the money saved in pensions and elsewhere must last them for the rest of their lives.

“At Carbon we spend more time encouraging people to spend more money in retirement than we do encouraging people to save it. After all, if you are saving for retirement then you have reached your destination and it is time to start doing all the things on your ‘bucket list’.

“I think there is a danger that savers may be tempted to draw their money from pensions and invest in ‘get rich quick’ schemes which inevitably fail. If it sounds too good to be true, it definitely is.

“It will become vitally important these savers get good quality independent financial advice and guidance to ensure they make good decisions about how to best pay for their retirement.

“The starting point should be a long term financial plan which takes into account income, expenditure and savings. Once you have established that you have enough money, then it is time to start spending as much as the plan allows!”

For more information on how the proposed changes will affect how we access money previously locked up in pensions, listen to Gordon on the John Beattie Show on BBC Radio Scotland, starting at 15 minutes, 35 seconds into the show, or read HM Treasury’s summary of the Budget.

Further analysis of how these changes will impact on financial planning for our clients will be featured on the blog in the coming days and weeks, but in the meantime, if you want to discuss the proposed changes with any of our financial planning team, email us at or get in touch on Facebook, Twitter or LinkedIn.

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