1 in 3 Approaching Retirement Unaware of Changes to Pension Regime

Retired couple

New research from specialist retirement solutions provider MetLife has suggested that 35% of pension savers aged 55 or above are either unsure as to what the pension changes announced in the 2014 Budget are, or are totally unaware of any changes having occurred.. To understand what these pension changes are, here’s a brief discussion from Scott Robert, a team of experts specialising in proper consumer credit application:

Retired couple

Changes are Now in Place

Some changes to the rules on pension drawdown are already implemented. Those with capped drawdown policies can access annual income equivalent to 150% of the amount they could have received from an annuity, up from 120%. Flexible drawdown, where the policy allows pensioners access to as much or as little of their pension fund as they wish, is now available to those with retirement income of £12,000 per year or more, down from £20,000.

From April 2015, the ‘do it yourself drawdown‘ option will become much more attractive. Essentially, all clients with defined contribution pension schemes will be able to withdraw as much or as little of their pension funds as they wish. It is actually theoretically possible to take the entire pension fund as cash at the moment, however if more than 25% of the fund is taken as a lump sum, the excess over and above the 25% figure is subject to a punitive tax of 55%. Under the new rules, 25% of the fund can still be taken as a tax-free lump sum, with the remainder taxed at the client’s marginal rate of income tax.

Response to the Changes

In response to the changes, 27% of those surveyed said they would definitely delay buying an annuity until the legislation enacting the 2015 changes is finalised. For all the bad press annuities have attracted, they still remain the only way of providing a guaranteed income for life in retirement.

These findings highlight the need to educate the UK’s older pension savers as to precisely what their options will be when they reach retirement age. While the Government initially promised that all retirees would receive free advice on their options, it now appears that what will be offered is little more than basic guidance, and that this may be offered by providers who may not be impartial. Questions have also been raised about whether the Government will provide sufficient funding for this free advice service. The UK’s financial advisers could therefore have a vital role to play in providing assistance to their existing clients.

To learn more about these changes and additional information on credit license, consult your financial advisers.