The total revamp of the pension system was presented to the public in March 2014, and came into effect on the 1st of April 2015. The changes were devised in part by Chancellor of the Exchequer George Osbourne. This article will hopefully help you to wrap your head around some parts of the new system that you may not yet understand.
I’ve written the article under the assumption your state pension is what you are relying on to live, so remember to factor in any other pensions of savings you may have before deciding how much to spend!
Those among us who will see the most rewards from the new system are usually going to be individuals with big pension pots. Simple withdrawal tactics, most notably taking out small amounts at a steady rate instead of splashing out large amounts on rare occasions lead to less tax having to be paid on your pension. Taking out money little by little over several years will always leave you better off in the long run than if you had withdrawn large amounts every 6 months to a year.
If you’re unsure of how to organise your pension, companies like Nutmeg exist to help you with their personal pensions.
The alterations to pensions mean greater freedoms to choose how we spend for all of us who get pensions, which is no doubt a good thing. It must be taken into account, however, that pensions now act in a similar way to a bank account that you gain access to age 55. When the funds are low or gone, there’s little you can do to change it.
Spending your money between the ages of 55 and 70 may seem like a good idea and as long as spending is kept sensible, what you may well deserve in your old age. However, if precautions are not taken you could be left penniless aged 70+, when you actually need the money more than ever. The holiday villas and luxury cruises may seem tempting, but make sure you think ‘will I regret this at any point’ before spending the money. Repercussions might actually not be felt for a decade, so the majority of the time it is better to be safe than sorry. This article from Money Advice Service outlines options on how to use your pension.
The age that we start to receive our pension is 55, but it’s not likely to stay this way for long with the retirement age to increase to 68 in the near future. The age that pensions are opened up for use is typically a decade before the retirement age, so we should expect that to rise too. However, none of this is set in stone but it’s best to be prepared.
If there is still anything which you are having trouble understanding, the government are providing advice sessions for those who need help.