The countdown to the 6th April has now begun. In less than two weeks time, those aged 55 and over will gain increased control over how they access and spend their retirement savings.
The current pension system will be replaced with a series of new measures:
- If you're aged 55 and over, you will no longer be required to purchase an annuity with your pension fund. Instead, you will be able to withdraw the cash as a lump sum or access your savings as and when you like under the new flexi-access drawdown. 25% of any withdrawals will remain tax-free and the rest will be charged at your marginal rate of tax.
- If you are already in capped drawdown, which is when a retiree's pension fund remains invested whilst a set amount is withdrawn as income, depending on your provider, you will have the option to transfer to the new flexi-access drawdown.
Currently under capped drawdown, there is a maximum limit placed on how much income that can be withdrawn each year. If an individual switches to the new flexi-access drawdown, they will benefit from the new pension freedoms mentioned above. However, it is important to note that the annual allowance for paying into your pension will fall from £40,000 to £10,000 a year.
- If you're currently in flexible drawdown, you will automatically be switched to flexi-access drawdown.
The shake-up the pension industry will provide more freedom for those in or facing retirement. However, the Financial Conduct Authority has warned that up to 40% of savers who cash in their pensions will be 'irreversibly worse off'.
The warning follows recent concerns that some savers are still unable to book an appointment with the government's pension guidance service, Pension Wise, despite only a matter of days to go before the reforms.
As mentioned previously, Pension Wise will only provide guidance and not tailored advice. The significant changes due to take place reinforce the importance of seeking advice from a Financial Adviser before making any final decisions that could affect your retirement.
In order to make the most of the pension reforms, if you're already in or approaching retirement, we would like to invite you to attend a FREE Pension Review worth £325 to discuss the pension reforms in more detail.