As most ‘approaching pension drawdowners’ will be aware from next year millions of people reaching retirement age will have more flexibility in the way in which they take their pensions.
Announced in the Budget, the requirement on many people with defined contribution pensions to buy an annuity will be removed. An annuity is a financial product that guarantees income till death.
According to the government the measure will give those reaching retirement more flexibility to do what they want with their pension pots. Unsurprisingly Labour is wary about this change and say that this policy has the potential to be “reckless”.
The following are some of the areas of concern recently expressed:
• With all of this money available to them the temptation may be there to blow the lot using the rationale ” well you can’t take it with you.” The state will then have to bear the burden of support.
• Unless they have a taxation adviser the potential for having to bear tax at 40% on some, if not all of the income, could come as a mighty shock. Anyone considering taking large sums should consult a chartered tax specialist before doing so.
• As a pension pot can be taken as cash it becomes part of the pensioners’ estate. However, unless it is invested in a way that avoids inheritance tax, it could push the assets left in a will over the £325,000 threshold that means inheritance tax will be levied. Again consultation with a chartered tax specialist is vital.
• If further investments are looked for some think it could be in property which in turn could push up the average house price. However, the counter argument to this is that the majority of pensioners will not have sufficient in the pot to enable them to buy property.
• For those who decide to continue to purchase an annuity there are, as always, opposing schools of thought those who believe that annuity companies will improve their rates and those who believe annuities may become more expensive as less people buy them.
• Unfortunately mis-selling may raise its ugly head abut to counter this the government has today announced that free, impartial advice will be available.
As with everything in life, “you pays your money and you takes your choice”.
Those of us who have already bought an annuity may feel a tad annoyed that this new option wasn’t available to us. But you know I think that I would still have opted for the annuity content in the knowledge that I have not been tempted to ‘blow the lot’ on a holiday pad in Lanzarote or a Harley Davidson!
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