Pensions – can you see clearly now the rain has gone?

By Frank Morton, Director of Wealth Services at AAB Wealth, Chartered Financial Planners

5th April 2015. George Osbourne, fires the starting pistol on “pension freedom”. Pensions stumbled into the spotlight and people started paying attention, exploring what they could do with their newfound riches.

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So what has happened since the smoke cleared?

  • Customers have withdrawn over £9.2bn from their pension funds.
  • The government has enjoyed a tax windfall
  • Annuities are on life support after a 70% fall in sales

Pension freedoms worked for many but not all. The confusion around the tax consequences of cashing in your pot took the shine off. HMRC rejoiced. Lamborghini sales disappointed. Retirees may be in the driving seat now, but not an Italian one.

Pensions became the “new black”. Now you could invest, get tax relief on top and not have to wait until you were too old to enjoy it, to enjoy it. For those who do not live long enough, you can pass your money on.

  • 55% of eligible customers used their new flexible income options
  • 14.1% of the UK population, (5.5m) are now saving more via pensions
  • 15.3% recognise they need to plan for life after work

Some, but not all succumbed to temptation and opened Pandora’s Box:

  • 28% used their cash for home improvements
  • 26% withdrew funds and put it into savings accounts!
  • 19% invested it elsewhere
  • 19% went on holiday with it, but did not bring it back!
  • 12% paid off mortgages and other debts
  • 13% bought a new car, but not Italian supercars

Opening up of options for 13m in Defined Benefit schemes was another major result. Annuities were out of favour due to market rates. This actually enhanced individual members fund transfer equivalents, leaving employers signing bigger cheques.

As a result, many have explored their options, such as income, tax and inheritance planning, enhancing the attractions of pensions. Have you?

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