Pension freedoms – what should you be aware of?

9th April 2015

This month, Jonathan Watts-Lay, Director, WEALTH at work comments in ‘How to Retire in Style’ magazine.

Watts-Lay features in several of the magazine articles, discussing the options available now the pension changes have come into force and what individuals should be aware of when considering their retirement income options. Below is an outline of the topics he comments on.

Implications of cashing in

The pension changes mean that individuals can now simply withdraw their retirement savings in cash. Watts-Lay warns about the tax implications of doing this, “Someone earning £25,000 and paying basic-rate tax, cashing in a £30,000 pension in one go would become a higher-rate taxpayer overnight.”

Currently many employers may not be able to offer this, so individuals could consider transferring  to a provider who can do this. Watts-Lay comments on individuals who may want to cash in their workplace pension, “You may be limited to one withdrawal a year or find that you have to move your money to a third party (such as a SIPP).”

Shopping around when buying an annuity

The magazine highlights the importance of shopping around when buying an annuity. Watts-Lay comments that comparison websites don’t always include all providers, “Don’t just go to one comparison site and assume what you’re being offered is the best rate. You need to try a few.”

Making health declarations when buying an annuity

Watts-Lay discusses the importance of making health declarations when buying an annuity, “The process of making health declarations can be overwhelming – you’ll have to provide details of your condition and any medication you take and so on – but it’s worth the effort. There is no win for people with ailments in not declaring them, and some brokers will have medical specialists to help you through the questions.”

Keeping your options open

The flexibility that the pension changes now bring allows individuals to keep their options open in retirement. Watts-Lay comments, “For many people, retirement will no longer be about making one lasting and final decision the day you retire. You can keep your options open and start with one strategy and then switch to another, as and when your needs change. People will make a series of decisions, buying products for a limited time, like they might have done with fixed-rate mortgages on their home.”

“You might hit your 70s in good health and feel the need to secure an income for life. Alternatively, you may have health problems that could see you live anything from five to a further twenty years and see the benefits an enhanced annuity could bring.”

Seeking advice

Regulated advice can help individuals understand what the right choice is for them personally. Watts-Lay explains, “In many cases you could get advice for a similar price [as doing it yourself]. But you don’t get the benefit of the advice or the consumer protection that comes with a regulated adviser.”

Watts-Lay compares not getting regulated advice to buying an expensive kitchen and not employing experts to fit it, “Would you spend thousands of pounds on a new kitchen and then fit it yourself with no experience?”