From April 2015, many of the pension pot restrictions will be lifted. Everyone will soon have a lot more freedom come retirement.

Whether this will affect you tomorrow or in 40 years, it’s important to understand the implications and how you can take advantage.

An Independent Financial Adviser’s opinion

As an advocate for objective-based financial planning, I’ve welcomed these changes. More freedom makes it that much easier to build a financial plan around what matters to you.

Still, I’m also aware that complete freedom of choice is probably overwhelming to the majority of people.

The traditional restrictions

Pension funds have traditionally been used to buy an annuity at retirement.

Savers who had secure income of over £20,000 per year in retirement were permitted to access the remainder of their pension funds as cash (subject to tax) if they wished, this was called flexible drawdown.

This minimum income requirement was reduced to £12,000 for the current tax year and will be removed entirely from next April.

This means you can use Flexible Drawdown on a fund of any size, without first needing to arrange a secure income.

What this means for retirees

Income Drawdown isn’t anything new. However, the requirement to provide a ‘secure’ income meant these were only accessible to those with larger pension funds.

From April, you will have access to your entire pension fund, with no restrictions, from the age of 55. Although, there will be tax implications to bear in mind.

The Wealthiest You’ll Ever Be

From the age of 55, you will probably have direct access to more cash than ever before.

The traditional restrictions were designed to ensure you didn’t run out of money throughout retirement. Now that this is gone, the responsibility is entirely yours.

Outliving your retirement fund is a very real risk.

What about final salary schemes?

Final salary schemes are exempt from the rule change.

However, it is likely there will be ways to transfer benefits to a personal pension and cash that in.

In the majority of cases, it would not be beneficial to sacrifice the long term benefits of a final salary scheme for a lump sum. Final salary schemes sometimes offer generous benefits that would be hard to find elsewhere.

It’s daunting

The flexibility offered is certainly daunting. A lot of my clients who are approaching retirement had always expected to purchase an annuity.

And, while annuities still play a big part of catering for retirement, it will definitely pay to consider your options.

As independent financial advisers, we’re here to help. For retirement advice or to book a review, call 01823 250750.