New Pension Rules: Lamborghini or Labyrinth?

There has been much commentary in the Press in recent months about the new pension rules which come into effect from 6 April 2015.  Whilst some have suggested the possibility of new retirees being tempted to blow their ‘pension pot’ on a Lamborghini, others are concerned that the complexity of the new rules and the underlying issues at stake will result in confusion and poor decisions being made by new retirees.

Some of the main issues facing new retirees at the moment are:

  • Understanding the choices available under the new rules, the complexity of the alternatives and the taxation rules that apply.
  • The length, complexity and jargon of the pre-retirement documentation (known as the wake up packs) that is being issued by the pension companies.
  • Retirees with a number of different pension funds built up over their lifetime in different employments.
  • The ability and knowledge required to shop around to obtain the best deal on an annuity product, and to obtain an improved package with health and lifestyle factors correctly reflected.
  • Underestimating their life expectancy and their financial needs in retirement with cash funds running out.
  • Obtaining the best return on cash funds withdrawn from their pension, with poor investment choices resulting in inadequate return against inflation or with possible loss of funds if too much risk is taken on.
  • What happens when the retiree dies? The tax rules for passing on a pension pot at death are also changing in April 2015, but will depend on whether the death is pre or post age 75.
  • Pension firms struggling to keep pace with the reforms and being unable or unwilling to implement the new rules, with delays resulting in accommodating the new requirements.

The Government has promised that expert advice will be available to all new retirees, although they have not said how this will be achieved and the pension industry is concerned whether adequate resources will be available to provide the guidance required.

However, I believe that the answer is clear – anyone approaching retirement after 6 April 2015 should take their own, independent financial advice – sooner rather than later.

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