Financial planning / Pensions

Pensions – the missing piece of the puzzle

Despite a simpler pensions framework being introduced a few years ago, it can be tricky to know what options are available when it comes to accessing and using your pension. Huw Wedlock, Director of our Singapore office, takes a look at some of the suggestions being considered by the UK government to help people better negotiate the pensions minefield.

In April 2015, a new framework was introduced for how pensions in the UK could be used or passed on, giving greater choice and freedoms. The changes established the concept of Flexi-Access Drawdown, enabling you to take your pension as a tax-free cash lump sum of 25%, and the remaining 75% when and how you preferred, to create regular or occasional income payments. Of course, the ability to use the more traditional route of purchasing an annuity remains available too. These pension changes have been largely successful, offering more flexible options when it comes to using your pension pot.

But despite the changes, a new report from the Work and Pensions committee has suggested that pension savers need much more help in understanding the updated rules, and what options they have. In fact, the committee called for a target to be introduced to ensure that at least 60% of people seek specialist advice before the time comes, both when they want to access to their pension pots, and again when they come to draw their pension.

Pensions legislation has become known as something of a minefield, and although the recent changes have provided more flexibility, they have also caused uncertainty with many people still feeling ill-equipped to know what’s possible or allowed. Certainly, the ability to, for example, take a lump sum and then opt for an annuity may be the best option for you, whilst others may be better suited to a regular payment from the outset.

Another interesting quirk is that your pension sits outside of the Inheritance Tax (IHT) net, so it can be worthwhile, if feasible, to use other assets to fund your retirement plans, safe in the knowledge that your pension can pass on without attracting IHT.

It’s vital that you understand the options you have when it comes to your pension, so that you can make well-informed decisions about your retirement. Failing to do so could leave you feeling confused and frustrated; you may have worked hard to build your pension fund through your working life, only to find that you are unclear of how it can be used most effectively, and tax-efficiently, to support your retirement. In fact there’s plenty of research that seeking expert advice can help you to achieve a better financial outcome.

To discuss any aspect of your pension or retirement plan please contact your nearest office.