In last week's Budget, George Osborne announced a number of major changes to the pension system, giving investors greater control of how and when they are able to draw their pension. At present, from the age of 55 an investor can normally take up to 25% of their pension as a tax-free lump sum and a taxable income from the rest.
However, rules are in place that determine the maximum income most people can draw each year.
In the Budget, the Chancellor proposed that these restrictions should be removed. From April 2015 pension investors will be allowed to take the whole of their pension as a lump sum, at the age of 55 if they so wish without being required to purchase an annuity, subject to consultation.
Mike Franklin, Chief Investment Strategist at Beaufort Securities said:
“The Brave New Investment World ushered in by George Osborne’s recent Budget has liberated the way we can think about pensions and saving for retirement.”
Mike continued, “However, how true this is will depend on savers’ individual circumstances and specific requirements. Pension saving may not be appropriate for everyone at this particular stage in their lives. If, for example, they’re saving for a home, other investments such as ISAs might be more suitable in the short term.
"Any form of investment needs to be considered with the benefit of expert guidance and it has to be recognised that this move comes at the same time that the Coalition Government is reducing the allowances for pension contributions.”
Mike concluded, “People who are considering making contributions but have not used their full ‘entitlement’ in the past few years should check the rules – again with professional guidance – to maximise their possible contributions and, in turn, the associated tax reliefs by the tax year-end.”