Pension freedom – not as “free” as you think

14th July 2015

The new pensions freedom of choice has given people far greater power over how they spend, save or invest their retirement funds in future. This has led to many questions and misconceptions arising.

Whilst you should be able to draw the full value of your pension fund as a lump sum (but beware of the income tax pitfalls), you may not be able to do so in stages via what is known as drawdown. This is because many older pension plans are set up on old IT systems and they simply do not have the capability to facilitate stage payments.  Although these changes have been brought in due to new legislation, it does not force pension companies to pay funds from existing plans in this way. You may therefore be required to transfer to a new plan that will facilitate all of the new pension freedoms.

Whichever route you take you should take advice. The Government has promised that everyone will have access to free “guidance” via the Pension Wise service to help you understand what your choices are. However, it is important to be aware that this service will provide only general guidance and not personal advice. You should therefore seek personal financial advice from a regulated independent financial adviser. You will have to pay for that advice, but it will be money well spent.

Everyone’s individual situation is different but you should remember that a pension is designed to provide an income for you in retirement. With people living longer than ever, you could be retired for many years and you need to consider how you will survive if you spend your entire pension fund now.

There is already evidence of high pressure telephone sale techniques and scams targeting the over 55s promising high investment returns. It is important that you deal with a regulated independent financial adviser and remember that if an investment sounds too good to be true, it normally is!

In summary, these changes will give pension investors and retirees much greater choice and flexibility, making pensions an even more attractive choice for saving than ever before. However, you should be careful that you don’t fall foul of any of the pitfalls mentioned above.

All content is for general guidance only. It provides an outline, and may not include points which are important in your case. You should not rely on this blog without taking individual advice based on the full facts of your case. The information given was correct at the time of publication.


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