In 2006 we all watched, spellbound, as Mr Brown announced he was going to make pension legislation all twinkly and simple. Unfortunately, as Cinderella’s fairy godmother remarked, “Even miracles take a little time”.
After nearly 10 years of feeling like Alice’s journey through Wonderland, curiouser and curiouser, we arrived with a bump in the land of the new pension freedoms. At first glance, I agree with the view of the Mock Turtle, “Well I never heard it before … but it sounds uncommon nonsense”!
However, in true Disney style, there is a “spoon full of sugar” in the form of the many more ways you can use your pension fund. Let’s take a look at some of them:
- You won’t be forced to buy an annuity, which only pays a trivial amount of income, and instead, you can ‘drip’ out capital, at whatever amount you like, as required. You can even take it all at once!
- If you die you can leave the pension fund to anyone, free from inheritance tax. It doesn’t have to be left to a spouse or to children, and it doesn’t even have to be a lump sum. Under the new rules, Cinders could leave her funds to Buttons, as a survivor pension, which he could access before the age of 55 and, possibly, not pay income tax on the proceeds.
Of course, as always happens in the best fairytales, you don’t get to the happy ending without some level of struggle and cost. Many providers have not embraced the reforms and do not offer the freedoms now possible under existing contracts. If you take no action, you could miss out on having a more flexible income in retirement and, on death, loved ones might miss out on securing more flexible, tax efficient benefits.
So, make sure you get your pension plans reviewed, but before you go ahead and move your money, please do watch out for the costs involved. This could be a fee for advice to transfer funds or as a result of losing valuable guarantees. Not to mention the unscrupulous companies who will happily ‘magic’ your capital away with promises of exceptional returns, no charges and your capital guaranteed. Like Snow White and the juicy apple… the loss of your hard-earned savings is certainly going to stick in your throat.
Our advice? Make sure your pension plans have all the freedoms you need to fulfil your life plan and that you officially record the names of those you wish to benefit when you die.
Our award winning, highly qualified team at Carbon will be delighted to help if you have any doubts. So please get in touch by calling our Edinburgh office on 0131 220 0000, or sending an email to firstname.lastname@example.org.
As the great man, Walt Disney, said, “The way to get started is to quit talking and begin doing”.