Member Article

Trust needs to be rebuilt in pensions

I realised a long time ago that the word pension is a complicated one and much of the public’s confusion stems from the plethora of changes that the Government has introduced in recent times. It claims this evolution seeks to reinvent pensions in order to make them more appealing and fit for purpose in the modern world. Of course, to offset this, the state retirement age has been put back to 68 for many people, and as longevity rates increase, 70 may well become the new retirement age. A concept many of us will struggle with.

Under the proposed changes, gone is the requirement to purchase an annuity (income for life) and you can now draw part - or all - of the fund as you see fit, subject to reaching a minimum age of 55. Generally, the first 25% of the fund can be taken tax free with the remaining fund being taxable at your marginal rate.

The more cynical amongst us may believe that George Osbourne hopes many people will draw their entire funds producing an additional tax take for the Revenue. There is also a proposal to abolish the potential 55% tax charge on death, and a further proposal to allow pension funds to be passed down the family line whilst retaining the tax free wrapper.

So, pensions are more flexible than ever and combined with the dual benefit of income tax relief and tax free growth, they can be one of the most powerful planning tools available. With the removal of the upper income cap allowing individuals to draw any amount out of their pension pot, will we see people drawing out whole funds to buy a Ferrari or a yacht? The short answer will probably be no. More than likely we will see people access their pots to fund children’s university education or house deposits, and maybe even for their original intention as a pot to retire with!

In general all the proposed changes are positive and will give everyone more flexibility and control over their pension and financial future. However, if trust is to be rebuilt in pensions, a period a consistency is required with no further changes, so people can come to terms with reinvention of pensions. If you are reading this George, no more changes please!

Antony Keen, director in the Wealth Management division at PM+M.

www.pmm.co.uk

This was posted in Bdaily's Members' News section by PM+M .