Whatever Your Thoughts On Pensions, Think Again

18th July 2014

Colin Chamberlain, Director and Independent Financial Adviser at Chamberlain Stean and West in Chipperfield, looks at how the recent Budget will have the greatest effect on people’s attitudes to pensions since 1921.

Whether you’ve been conscientiously saving into your pension pot for decades or you’ve lost faith in pensions, the changes announced in the Budget are likely to make you think again.

How the changes could affect you.

The reforms brought about the biggest change to retirement planning in living memory, giving people unprecedented access to their pension funds. You can now withdraw some, if not all the money from your pension pot at any time from your 55th birthday, as well as 25% of your funds in a tax free lump sum. Lifting the controls of when and how much of your pension you can access, means the money you have saved for your retirement is there to use as you want, when you want.

This level of flexibility and freedom brings new responsibilities. Being able to withdraw more from your pension in the earlier years of your retirement, while you still have the energy for travel and holidays is a huge benefit for most. However, you need to be mindful of the impact of blowing your pension pot too early. The best way to make sure you don’t run out of money in your retirement is to get advice and put a financial plan in place, to avoid the risk of damaging your future security.

So much choice, but how to choose?

Choosing how to go about setting up the right pension or retirement saving strategy can be a daunting prospect. The range of retirement income options is confusing to say the least. There’s the choice of annuities with as much as 18% difference between the ‘best’ and ‘worst’ standard annuity rates based on the same information (Assureweb 8 Jan 2014). There are options for income drawdown (capped and flexible) and 'Third Way' products. The stakes could be high if you make the wrong choice. Your attitude to risk, personal circumstances and health are all key factors which you’ll need to consider to determine the right option for you.

Act now to avoid the pitfalls

How much is enough depends on the lifestyle you want to have in retirement, of course. According to research from The Independent on Sunday, the average size of a person’s pension pot in the UK is £30,000. What most of us don’t realise is that to secure even a modest income equivalent to the minimum wage of £12,115, we need a pension pot of £220,276. Even the most conscientious amongst us may struggle to get a true understanding of how to go about making the right choices to secure the necessary retirement income. And decisions are made harder by ongoing changes in tax rates, rules and regulations. It really has never been more important to seek independent financial planning advice to help you work through this maze.

For further information, call Chamberlain Stean & West on 01923 270036. Chamberlain Stean & West are appointed representatives of FinancialLtd, which is authorised and regulated by the Financial Conduct Authority, FCA No 466922.

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