Want to save money?
Review your mortgage



You could withdraw
25% of your pension pot



Fed up with low savings rates?

Slide 1

Cambrian helping you grow through sound financial advice

Make sure you are properly covered
Slide 2

Cambrian provides holistic, independent, face-to-face financial advice

Make sure you are properly covered
Slide 3

Cambrian are committed to development of our professional connections

Make sure you are properly covered

Auto enrolment headache?

Call for a Free initial consultation.

Pension Freedoms: six months on

23rd October 2015

It has been six months since the door opened to pension freedoms.

We were cautiously optimistic before the changes came in about what it would lead to. Ultimately, we want clients to make positive financial decisions, which benefit their long-term financial health, and clearly one of the trepidations of the new pension freedoms was that people would strip away their pension funds and spend the lot, to the detriment of their retirement income and financial well-being.

At this early stage, the signs are encouraging that pension investors know how to manage their savings sensibly.

Yes, in the first three months of pension freedoms, over £2.5bn was withdrawn in cash and income drawdown payments (Source: ABI). But that represents less than 1% of all pension funds held by over 55s.

Where clients are coming to us for advice on withdrawing pension funds, it is typically so they can repay long-term debts, such as their mortgage, and free themselves from financial commitments. We have not had a rush of clients wishing to withdraw their pension funds “just because” or to fund extravagant purchases (no Lamborghinis).

What we have found is that it is where clients act on their own, without speaking to us first, they can come unstuck.  There can be tax implications for withdrawing a large pension lump sum in one go, and it may make more sense to phase withdrawals over a period of time. Without sensible advice or guidance many people will not realise this, and will have a shock when they see how much tax has been deducted. When faced with the minefield of potential tax charges the cost of financial advice is money well spent. They may also later regret withdrawing money from their pensions – when they had other options (see list below).

Some providers may also be reluctant to deal with clients directly – and we find clients coming to us for advice after trying, and failing, to do it themselves.

We would normally advise clients, where other options for income or capital exist, to maintain their retirement savings in their pensions, for the following reasons;

  • Funds held within a personal pension grow free of any income or capital gains tax. Both benefits may be lost if the capital is withdrawn.
  • Pension funds can now be passed on to the next generation tax-free before the age of 75; they are outside of the estate for inheritance tax purposes and there is no longer a one-off pension tax charge on death. As such using pension savings before other investments can increase liability to inheritance tax significantly.
  • The first 25% of a pension fund can be taken as a “tax-free lump sum”, but the remainder will be subject to income tax at the client’s marginal rate of income tax. It’s therefore more tax-efficient for many clients to defer taking taxable income from their pension funds until they retire from work, when earned income reduces or stops.
  • Once you start taking a flexi-access drawdown income, the annual allowance for future payments into pensions earning tax relief reduces to £10,000, so clients considering taking income and/or capital from their pensions now, with the aim of replenishing their fund at a later date, may have limited scope to do so.
  • Some pension plans have guarantees attached to them, for example guaranteed annuity rates, or they could have penalties if early retirement is taken, and it may not be wise to transfer or surrender these plans before retirement.

Whether or not pension freedoms are right for you will depend on your circumstances.

To arrange a consultation meeting about Pension Freedoms call us on 01244 539595.