It’s just over two years since the pension reforms were introduced to give people more choice in accessing their pensions. We look at how pensions have changed.
One of the benefits the pension reforms have brought is that it is encouraging people to think more about their pensions when they’re younger.
According to research by Aegon, 15% of people have realised they need to plan more for their retirement. The number of people talking to an advisor has almost doubled in the last 12 months.
People are saving more
What is particularly good to hear is that since the reforms, 14% of working age people are saving more in their pension pot. As a result, there has been a big jump up since April 2015 in the average amount that people have saved, from £29,000 to £50,000.
Just as it’s important for people to seek advice on how to grow their pensions, the new freedoms mean that people should equally take advice to manage when and how much they take out at retirement.
Think about future costs
There may be a temptation to withdraw a large sum and leave yourself with too little to enjoy in a long retirement. Before splashing out on a long, exotic holiday, it pays to take a moment to think about some of the costs you may need to prepare for now.
When planning for your future, you may need to consider funeral and possible future care costs, as well as any outstanding debts. If you have built up a large pot and plan to invest it, you will need solid financial advice to ensure you get the best return.
Figures from HMRC show that many people are taking advantage of the freedom to withdraw money from their pension pot after the age of 55. During the last year, an average of 164,000 people withdrew money each quarter. The average withdrawal per individual was nearly £9,900.
The beauty of the pension reforms is that people have more choice to decide what to do with their pension pot.
There are 6 options once you get to age 55:
1. Leave the pot until a later date
2. Buy an annuity
3. Invest the pot to produce an income
4. Withdraw cash in chunks
5. Withdraw the whole pot in one go
6. A mix of the above
Many people are still following the traditional route of buying an annuity, but as the figures go to show, many are also enjoying their new-found freedom. But the choices you make at retirement may have a big implication on the inheritance tax your dependents will need to pay.
It is worth discussing this with both your financial advisor and your Will writer. It’s a complex area and in some situations, it may be advisable to set up a Trust.
For advice on planning your Will please contact E.L.M Legal Services on 0800 019 4557.