Pension freedoms open up a world of choice

pension tips


Julie Hutchison

21st May 2015 at 11:27am

A matter of weeks into the new, flexible world of pensions seems like a good time to stop and reflect on what’s been happening and look at some emerging trends.

From the conversations I had with some customers who called us shortly after 6 April, what’s clear is that some people are taking the opportunity to use their pension money to pay off debt. Others are buying a caravan, or paying for home improvements, or the holiday of a lifetime.

I was also struck by how often customers mentioned using some of their pension savings to invest in their own business. Having pension savings can certainly create new possibilities.

Then there are the big-ticket items which have grabbed most of the headlines – a speedboat and a wedding are two that spring to mind. They’re good reminders of how varied people’s spending decisions are and how our pension savings can help us live the kind of life we want to after the age of 55.

From the customers I spoke to, those encashing their whole pension tended to have smaller pots, whereas those wanting to take tax-free cash or take a flexible income had larger pension pots.

These two groups are using the new pension flexibilities in totally different ways. For some, cash is king.

For others, taking some money out while also staying invested to make the most of the opportunity for tax-efficient growth over the decades ahead is their preferred approach.

There are other aspects to the post-6 April world. Some customers still want the security of a guaranteed income and will buy an annuity to give them that peace of mind. And many aged 55 are not planning to touch their pension savings until their 60s. One customer I spoke to was in their 70s, had not touched their pension savings yet and was still working part-time – that’s certainly one approach to making your money last longer.

Whatever you want your retirement to look like, whether that means taking cash, setting up a fixed income or treating your savings like a bank account – or a mixture of all three – what is certain is that what was true before 6 April, when those pension reforms landed, remains true today.

Saving more will give you more choices – and that’s exactly what the pension reforms set out to do.

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This blog is not financial advice. A pension and a stocks and shares ISA are investments. Their value can go up and down and may be worth less than you paid in. Laws and tax rules may change in the future. This information is based on our understanding at May 2015.