Important changes to pension legislation

This entry was posted on 03 August

Britons could soon enjoy greater financial flexibility in retirement thanks to draft legislation released by the UK Treasury. Individuals are no longer forced to buy an annuity with the proceeds of their personal pension scheme at any age. Instead, they will continue to have the options to save it or move to a drawdown (unsecured pension) arrangement in which their pension is left invested and money is taken directly from that pot.

This increase in flexibility ended a compulsory purchase system which was introduced by the previous government. Increasing life expectancy and the fact that older people are working longer, coupled with the current environment of low interest rates and therefore poor annuity rates, were making their original 75-year cut-off appear a little draconian. (A cut off which has now been reset to 77 to give time for this legislation to be finalised.)

The National Association of Pension Funds (NAPF) welcomed the additional flexibility, though they do believe that the new rules will benefit mostly those with larger pension funds. Indeed, many people are still likely to choose an annuity simply to fix their income expectations and enable them to plan. More fundamentally, however, the NAPF warned that most people are simply not saving enough into their pension schemes. They have therefore urged the government to do more to encourage and support strong occupational pension schemes and “creative, flexible” ways for individuals to save for their retirement in the first place.

To discover how this could affect you, contact us to discuss.

The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.