14th May 2018 at 12:57pm
Pension freedoms: Get a life, when you want, how you want
By Elle Tucker
When Niki Hutchison thinks about being in her fifties, owning a Spanish villa and enjoying a work-life balance that suits her is what she pictures.
That’s because Niki, 39, like many people in their mid-life, is throwing away the rule book written by some previous generations.
She’s thinking about working less and living more.
And thanks to pensions freedoms, introduced three years ago, many people are already doing exactly that – sooner than they might have hoped.
The changes to pensions introduced in April 2015 were ground-breaking, handing back control to more people over the way they want to live later in life.
What could this mean for you?
So, what does this freedom look like? You have more choice and flexibility, for starters. You don’t have to buy an annuity with your savings, as most people used to, giving you a guaranteed income for the rest of your life.
Now you can access your life savings from age 55 and it’s up to you when, how and what money you take.
Take some as a lump sum, or all if you’ve got enough money elsewhere to live on, or leave your pension savings invested and take an income, or a mix of these. And if you prefer, you can just leave your savings untouched, and still invested, until you’re ready.
“Since pensions freedoms were introduced, I’m even more focused on making sure living in the Mediterranean becomes a reality, particularly as I would love to make it happen as soon as possible,” says Niki, who owns an Edinburgh business management consultancy. “We started our family young, so by the time I’m in my 50s and ready to start accessing my savings our children will have left home.
“I’ve built my business to be largely online, enabling me to work from anywhere in the future,” she goes on. “Having an online business, combined with the freedom to access pension savings earlier, will make it much easier for me to make sure our Ibiza dream becomes a reality when we are still young enough to make the most of it.”
Niki is an example of a new generation of people who know what they want and are saving to make it a reality. They want something to look forward to, and retirement doesn’t have to be a ‘cut-off point’ any more.
For Niki, who loves her job, this means that when she’s still in her fifties she can start to access her life savings, and keep working.
‘I want to work less, and travel’
For 50-something Martin, who prefers to remain anonymous, pensions freedoms have allowed him to do something he’s always wanted to – spend less time at the office.
He’s chosen to start working part-time, because by taking his pension when he needs it, he can work less, keep the same standard of living he’s used to – and do some travelling with his new partner.
“I’m still saving too, and I’m conscious of making my money last. I’ve got quite a few years left in me yet!”
So, three years on, pensions freedoms mean that many people can live a life that reflects the changing world we live in.
It won’t stop changing either, and the age when you can usually take your savings may change in future, with the age when you can get your State Pension rising too.
The future has ‘got a lot more interesting’
Faith Archer, an award-winning personal finance journalist and money blogger at Much More With Less, explains how the future “suddenly got a lot more interesting since the government ripped up the rule book and introduced pension freedoms”. Now, she’s much more interested in saving.
“I can still take out up to a quarter of my pension pot tax-free when I’m ready. I can leave the remainder invested, and take out money as and when needed using pension drawdown. So nowadays, I’m not just thinking of investing till I reach ‘ordinary’ retirement age.”
We’re all living longer in the UK: by 2041, women will live, on average, for 86.2 years and men for 83.4 years, recent projections by the Office for National Statistics revealed.
“If I’m lucky enough to live that long”, says Faith, “I’ll have the time to invest in much zippier global funds and emerging markets.”
Faith is also glad of another change – how pension savings can be passed on more easily. Pension pots can pass to your children or others you want to benefit, sometimes tax free, and usually without paying inheritance tax on it, says Faith, as pensions aren’t normally counted as part of inheritance tax.
Ultimately, it’s all about choice
The chances are you’re paying into a workplace pension, which is a great way to invest in your future during your working life.
Whatever stage you’re at, doing what you can to build your life savings and taking advantage of those pensions freedoms when you’re ready means you’re more likely to be able to do what you want in your still-young 50s and 60s and beyond. Your future could take on a shape you had never imagined before.
Will you live abroad like Niki, work part-time like Martin, or follow your own dream? Whatever you choose, there’s a lot to look forward to.
Elle Tucker is a freelance journalist.
Tax and legislation may change and the information here is based on our understanding in May 2018. Your own circumstances will have an impact on tax.
Your pension is an investment – its value can go down or up and may be worth less than you paid in. You could run out of money sooner than you expect.
This article shouldn’t be taken as financial advice.