Pension Flexibility – Record Numbers

According to the latest Office for National Statistics (ONS) population estimates, the next six years will also see consistently high numbers of people (exceeding 900,000 annually) turning age 55, the minimum age for pension flexibility entitlement to begin.

The introduction of the pension freedoms in 2015 means individuals with money purchase pensions can access their pension savings with complete flexibility in accordance with their specific requirements. This might involve extracting the whole amount, ad hoc or regular lump-sums (a proportion of which will be tax-exempt) and/or taking a retirement income. Under income drawdown, individuals can remain invested in the stock market, thereby offering the opportunity to continue to experience investment growth into retirement.
Since its introduction in 2015, more than £35bn has been withdrawn by 1.4 million individuals through the pension freedoms, according to HMRC data.

Gone are the days where options at retirement were limited to a 25% tax-free lump-sum and an annuity thereafter or income drawdown for wealthier individuals (as higher charges made this uneconomic for most). Now the options are far more appealing and for some, the most appealing option will be to leave the pension intact until death. This enables the pension value to pass out of the deceased’s estate free of Inheritance Tax and allows beneficiaries to receive the pension value to draw down upon as they require.

However, it is important to bear in mind that many pensions (particularly older, often expensive plans) do not offer this flexibility. Instead, it may become necessary to transfer older pensions to newer options. Coupled with tax relief on contributions and tax-exempt growth, this makes pensions one of the most appealing investment options available. Indeed, as well as a means of accumulating funds for retirement, pensions can also be used for Inheritance Tax planning.

Please do contact the office if you would like to discuss this further.