What you need to know about pension freedoms

pension freedoms

Pensions

MoneyPlus Features Team

10th March 2015 at 11:42am

Pension freedoms – what you need to know

Pension expert Jamie Jenkins tells Simon Read what to be wary of when the new pension freedoms come into force in April 2015.

Video Transcript

Simon Read (Presenter)

“Hello there.  There are some big changes happening in April.  The whole pension system is changing – and for the better. It will give some great opportunities, but there are also some problems ahead. To find out why, I’ve come to the city to talk to a pensions expert – it’s Jamie Jenkins from Standard Life.

Hello Jamie…

Thanks for agreeing to talk to us today.  Can you tell us what’s happening in April?

Jamie Jenkins (Head of Pension Strategy)

“Well, big changes.  So, the biggest changes we’ve seen in many, many years for pensions.  From most people, from the age of 55, they will have full access to their pension pots.  Now, everyone might not have the need or want to do that, but they will have the flexibility to do that.  So, they’re no longer tied into buying an annuity – an income for life – rather, they have the choice as to how they’ll take their money out.”

Simon Read (Presenter)

“So they’ve got 3 main options.  They can take all the cash out their pot, they can take an annuity which is the existing system or there’s drawdown.  Take me through the options briefly.

Taking all the cash out – a good idea?”

Jamie Jenkins (Head of Pension Strategy)

“Well, it could be a good idea for some people and a bad idea for others depending on their circumstances. People who are still earning a wage, and who take money out, it will be treated and taxed as income.  This will be at their marginal rate – 20% basic rate, could be at 40%, the higher rate.  They need to be aware of the tax implications.”

Simon Read (Presenter)

“If they want an income for life, then should they stick with annuities?”

Jamie Jenkins (Head of Pension Strategy)

“Annuities are still available.  They will probably become more flexible – perhaps short term annuities or annuities being bought later in life when people are more certain about their finances.  These are available now but in reality most people have had to buy an annuity that lasts them the rest of their life. It’s now that there’s more flexibility in how they do this.

The third option – drawdown – is about flexible access. It’s about keeping some of the money invested and taking the rest as and when you need it. The problem is that managing that as an investment means the value can go up or down and, of course, if you don’t manage it or, with the help of an adviser, it’s not managed properly or you live a lot longer than expected, then you run out of money.”

Simon Read (Presenter)

“A lot of things to think about – what would you advise people do to find out more?”

Jamie Jenkins (Head of Pension Strategy)

“Well, the main thing is to not rush into a decision immediately.  April is when the changes happen – not a deadline.  It’s when the changes happen, the start of the changes.  People don’t need to suddenly make a decision in the first month or even year.  Think about it.  Speak to your provider, your employer or trustees.

Not everyone will offer all those options from where your pension is offered right now – you may need to transfer provider to get access to all of these options”

Simon Read (Presenter)

“Where are you going to get help with this?”

Jamie Jenkins (Head of Pension Strategy)

“Beyond the pension provider/trustees, the Government has set up a service called Pension Wise which is a free an impartial guidance service so you can speak to someone face to face or over the phone.

Simon Read (Presenter)

“And there are some dangers with these new changes aren’t there?”

Jamie Jenkins (Head of Pension Strategy)

“There are dangers – people could take all their money out, not realising the implications of the tax that will be taken off…

Of all the risks that could happen, the worst is that somebody could take their money out and give it all to someone who is simply scamming them and lose the whole lot. It can seem very appealing.  You can get very good sales people with glossy brochures, with offers that look too good to be true, guaranteeing 10%, 20% returns, guaranteed foreign investment schemes, holiday homes.

Usually, it’s a cold call – a telephone call, an email, a brochure.  Or, someone has responded to something they’ve seen that’s just an advert in the paper”

Simon Read (Presenter)

“There are a lot more opportunities from April 6, a lot more things to think about and a lot more to be careful about.

Thank you for watching”

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