Property & MoneyRobert Nicholas Financial Advisers

Lamborghini vs Pension

Pensions Freedom a year on!

We are now a year on from Chancellor George Osborne’s ground-breaking liberalisation of pensions. Back in April 2015 several press articles suggested that these new rules could result in many people using their pension pots to buy luxury cars, boats and holidays and not have any money left to fund their retirement, which after all was the main purpose of pensions.

However, over the last year our experience is that the majority of people are sensible and do not buy a Lamborghini or blow the lot in a Las Vegas casino.

The new pension rules, however, have had a dramatic effect on the market.

Before these reforms, the majority of people retiring would buy an annuity with their defined contribution pension fund and only a minority opted for drawdown. An annuity provides a guaranteed income for the rest of your life, whereas with a drawdown, your pension fund remains invested and as such could go down in value.

Now, after the new rules, the majority are opting for drawdown and only a minority purchase an annuity! However, annuities are still the best option for many and after the initial rush to go into drawdown, the take up on annuities could increase.

Not taking advice!

Recent data from the Financial Conduct Authority suggested that 42% of those going into drawdown did not take advice. This is concerning as drawdown is not right for everyone and has risks. With drawdown, as there is risk of the investment fund going down, the pension fund might not last and you could run out of money in retirement. Therefore, your choice of investment is vital and has to match your attitude to risk.

To help the over 55s understand their options the government set up Pension Wise. Those eligible for this service were offered a free 45 minute session which covered, amongst other things, the tax issues when cashing a pension, the importance of shopping around and how not to be taken in by fraudsters or scams.

However, a year on, the take-up of this service has been disappointingly low.

Beware the Scammers!

Scammers are after your pension pot. They know you can now access your savings in new ways and will try to lure you with promises of upfront cash and one-off deals with guaranteed high returns.

You could lose all your money and face a fine and a huge tax bill from HM Revenue and Customs.

Research by Citizens Advice suggests that as many as 10.9 million people have been cold called or texted and about 78% of people who had received unsolicited contact were offered a free pension review!

Take advice

As an adviser I am obviously going to suggest that people take advice. Pensions are complicated and taxation is not straightforward. Should you buy an annuity and if so which type of annuity? Should you go into drawdown? What funds should your drawdown be invested in? Does it match your risk profile? Should you do both an annuity and a drawdown? How much income should you take? Will your pension fund last? The questions are almost endless!

If you would like to go over all the options and discuss which may be best for you, why not come and see us? Remember the initial appointment is free and without obligation.

Steve Graves
Robert Nicholas Financial Advisers