If it sounds too good to be true… then look before you leap!
The announcement of the Government’s plans in last month’s Budget to give savers more freedom over how they use their pension funds to finance their retirement years, has certainly attracted much attention in the Media.
Baby Boomers in particular have been licking their lips at the possibilities that the proposed rule changes could provide – and thinking much about the opening sequence from The Italian Job (1969) with the iconic orange Lamborghini Miura P400 climbing the Alpine roads to the evocative soundtrack of ‘On Days Like These’ sung by Matt Monro … oh sorry – was I dreaming again?
Apparently since the Budget announcement, the majority of people coming up to retirement say that they do not intend to use their ‘Pension Pot’ to buy an annuity. New research from our colleagues at PWC has found that only 16% of those aged between 50 and 75 now plan to buy an annuity. PWC suggest that this could lead to a 75% decline in the UK annuity market.
However, some experts are warning that people who shun the security offered by annuities could be exposing themselves to unnecessary financial risks in their old age.
Recent research from retirement income firm MGM Advantage found that a major financial concern of more than two thirds of over 55’s was running out of money later in life. The survey also found that more than 80% of those approaching retirement routinely underestimate how long they will live for.
In addition, the proposed change in rules has also sparked considerable debate about the possibility of making additional pension contributions now and obtaining tax relief at perhaps 40% on the way in, but with the ability to then draw out those funds by taking 25% of it tax free at retirement, and the balance during retirement (over several years) with perhaps only 20% tax payable on the way out.
So what should you do?
I would suggest two things:
- Wait and see
- Take proper independent advice
Wait and see – as always the devil will be in the detail, and the proposed changes are currently under review with the end of a consultation period due at the beginning of June.
Take proper independent advice – the Government has stressed that people approaching retirement must be able to access independent expert advice to assist them with their choices under the new rules.
So before we all rush out to our nearest Lamborghini showroom – let’s wait and see what the new rules will actually be – and let’s make sure that we take our own independent expert advice.
In the meantime, if you would like to hear a first ‘taste’ of the proposed new rules following the consultation period, then why not come along to our seminar on the topic being held on 26 June 2014 at Leytonstone House. Independent Financial Adviser Mike Tattum of Professional Assured Financial Services will summarise the key points under the new rules. For further details and to book your place at the seminar please see our seminars page.Talk to Barnes Roffe today