It is just over a year since the pension freedoms came into effect. So it seems a good time to take a look back and remind ourselves of the significant changes and evaluate how retirees pension habits might have evolved in the meanwhile.
Over the last 12 months, we have seen a sea-change in the way people can access their pension pots but interestingly, despite these new freedoms and contrary to media speculation, there hasn’t been a major shift in people’s behaviour and habits.
What were the pension freedom reforms?
The pension freedom reforms of April 2015 allowed people over the age of 55 to take full control of their retirement savings. Pensioners were given complete autonomy over how they chose to take income from their pension savings. Government figures, released in April 2016, revealed that 232,000 savers had made the most of the new flexibility to take their pension cash as they wished, following the freedom reforms.
People of pension age can now opt for a guaranteed income for life through products such as an annuity. Alternatively, they may wish to choose a flexible income, where they can start, stop and change what they withdraw; otherwise known as drawdown. They can also choose a combination of both annuity and drawdown.
When do I get my pension?
Tax rules were simplified to give people unrestricted access to their retirement savings, whereby most people can now take 25% of their pension pot tax-free. Individuals can take money from their pension from the age of 55 and do not need to stop working in order to access their savings.
On the consequences of giving over-55s full control of their retirement savings, Angela Maher, Managing Director at Acumen, said: “The results have been overwhelmingly positive to date, with no real signs of people running riot with their cash. There is also some evidence that younger people are being galvanised to save more as a result of the reforms.’’
Pension pioneers enjoy freedom and choice
So, what exactly have these pension pioneers done in this inaugural year? Well, despite the concerns, there has not been a stampede by pension savers aged over 55 to raid their pension savings. Just one in five retirees have been buying an annuity – the traditional route – with the rest taking cash or drawing funds directly.
Many are afraid to make any decisions at all. A report from the Pensions and Lifetime Savings Association aims to identify what 55-70 years olds have been doing in the wake of April’s pension reforms. From the report, it is evident that there are three major groups:
- 14% were ‘Actioners’ who accessed their pensions for the first time.
- 63% were ‘Investigators’ who were actively considering their options.
- 23% were ‘Inactive’ – often because they were still working or did not currently need to access their pension.
Joanne Segars, Chief Executive of the Pensions and Lifetime Savings Association, said: “Pensions freedoms have destroyed the traditional norms, this first cohort of savers are effectively pension pioneers – working out how to make the right decision with their savings but at the same time naturally fearful of making a poor decision in unchartered territory.”
Here at Acumen, we can advise you on how to make the most of your pension freedoms. Talk to one of our team today on 0151 520 4353 or email firstname.lastname@example.org.
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