Lockdowns, struggling businesses, potential job losses – these are some of the reasons why you may be wanting to access your pension pot today. Whatever the reason, let's have a brief look at some of the options available.
There are currently 4.7 million eligible pension pots but just under 0.1% (£40 billion) have been withdrawn since 2015. So what are your options if you are the owner of one (or many) such pots?
Gone are the days when the only option was to buy an annuity – the guaranteed income for life is certainly suited to some but with increasing longevity, change in working patterns and not so great a return, this is no longer the only option.
The move away from annuities into drawdown products was one of the aims of the pension reforms. The worrisome feature here however, is the fact that too many drawdown arrangements happen with an existing provider without any meaningful access to independent financial advice. Without solid advice appraising individual circumstances, attitude to risk, capacity for loss, investment strategy and charges, many people may not necessarily on the right path when it comes to deciding upon their retirement options.
Let's meet Max, he is 62, in good health and happy working. Rather than moving into drawdown arrangement Max is better off keeping his money in his pension. In the past Max would have had to purchase an annuity, an irreversible decision not aligned with his lifestyle values. With pension freedoms, the choice is not set in stone and Max is free to discuss his plans and priorities with his adviser thus meaning that he makes an informed choice and his financial future is on track.
Understandably, not everyone is in a position to be able to wait or even wishes to. Sue, 56, a self-employed divorcee, has several small pots. She is not suited to drawdown or annuity but could avail herself to the money via her uncrystallised funds pension lump sum, or as the mouthful is known, the UFPLS. It is an alternative way to access her pension. 25% is tax-free and the remaining 75% is liable to tax. If any funds remain in the pot, the money continues to be invested. This option may be suited to those looking to take out small pension pots as a one lump sum. Again, financial advice is crucial here as the rules are complex.
As we can see pension freedoms have brought a lot of changes and with it an array of choice and it is imperative to seek professional advice. There is no potential for error - don't leave your biggest asset, your future, to confusion and uncertainty – there are as many retirement outcomes as there are people, so don't leave it to chance and contact us today for an initial, no obligation chat.
Silvia Johnson Bsc(Hons), DipPFS, EFA, CertCII (MP) is a Director and Independent Financial Adviser at Royale Thames Wealth and provides independent financial advice to individuals and businesses.
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Royale Thames Wealth Ltd is an Appointed Representative of New Leaf Distribution Ltd which is authorised and regulated by Financial Conduct Authority number 460421.The value of your investment may go up as well as down and the value is not guaranteed. Past performance is not a guarantee of future performance.Wills and Estate Planning are not regulated by the FCA