Instant access to pensions doesn’t have to mean right now

Pensions

Julie Hutchison

14th November 2014 at 12:19pm

My parents are old enough to remember when sweet rationing ended in the 1950s. I can only imagine how, as children, they looked forward to sweets without the restrictions of a ration book.

Rationing of a different kind comes to an end on 6 April 2015.

The limitations on how to take money out of a pension from age 55 will be no more.*

Like kids in a sweet shop?

So will we see a rush of over 55s forming a queue to empty their pensions and go on a spending spree with their instant access pensions?

That’s not what I’m expecting. And it’s not what the research is saying either.

Many people have worked hard to build-up life savings, and I just don’t think lots of 55 year olds will be in a hurry to blow all their money to then live off whatever State pension they might qualify forMany people have worked hard to build-up life savings, and I just don’t think lots of 55 year olds will be in a hurry to blow all their money to then live off whatever State pension they might qualify for (which could still be years away).

I fully expect some people will still opt for a guaranteed income later in life, where they want that reassurance.

But I’m expecting many people will stay invested, and take withdrawals as and when they need them, just as some people do today.

This kind of approach means you are less at risk of sleepwalking into an income tax bill , which people might do if they take their pension as a single cash lump sum.

And why take it in one go, just to put it in a low interest bank account, on which you could pay tax on any interest? And in doing so, you’ll have brought the money inside your estate for inheritance tax purposes too. That’s quite a contrast to pension savings which stay invested, which are nearly always free of inheritance tax, and where any growth is tax efficient and which have a better chance of beating inflation.

The three R’s

If you’re wondering what to do come 6 April, my message is this: don’t feel rushed, don’t risk sleepwalking into a tax bill, and do take time to reflect. Help will be at hand to give you the information you need.

A pension is an investment. Its value can go up or down and it may be worth less than you paid in. This blog and any responses to comments are not financial advice.

*The new flexibility is mostly available with ‘defined contribution’ pensions and not ‘defined benefit’ pensions. With a ‘defined contribution’ pension, you save into your own pot. This is different from a ‘defined benefit’ pension where you get paid an income which relates to a former job and years of service.

Keep up with the conversation on twitter @StandardLifeUK and Facebook and you can subscribe to regular Moneyplus blog updates here.

This blog and any responses to comments are not financial advice.