Southampton: Take advice on pensions shake up to secure future, warns Grant Thornton

With just a month to go before the biggest overhaul of personal pensions in generations, experts at the Southampton office of financial and business advisers Grant Thornton are urging savers to get to grips with the new regulations if they are to safeguard a financially-secure retirement.

One of the most notable aspects of the pensions shake-up introduced from April 5 is that individuals aged 55 or over will be allowed unlimited access to their defined contribution pension pots in a move designed to give people more freedom over how they use their life savings for old age.

For some, it may no longer be sensible to buy an annuity at retirement and instead, individuals may decide to either cash in their entire pension in one go or drawdown from their pension pot in stages to take a regular income.

Under the new system, from the minimum pension age (currently 55), individuals will continue to be able to take out up to a quarter of their pension as a tax-free lump sum. The remaining fund will be subject to income tax meaning that individuals should consider their tax position when deciding how to access their pension pots.

Commenting on the pensions overhaul, Nick Lee of Grant Thornton Southampton’s wealth advisory team, said: “The chancellor shocked the pensions world last year when he announced the new plans which included handing over the power to retirees to do whatever they want to with their nest egg.

“The changes are very welcome and present a great deal of opportunity to plan for a sustainable, tax efficient retirement. However, with this increased freedom comes responsibility and it is now more important than ever for individuals to make well-thought-out decisions about their pension and non-pension investments which are tailored to their long-term objectives. This will help to ensure the money they have worked so hard to save during their lifetime does not run out.”

Another key aspect of the pension reforms is that from April 2015, benefits on death before the age of 75 years can be paid out as a tax free lump sum. Even after the age of 75, it will also now be possible for pension funds to be kept as a pension and passed down to the next generation without the previous 55% tax charge on death.

This presents an interesting estate planning opportunity as some people may choose not to use their own pension funds themselves and instead look to maximise the amount that is left to pass on to their children or grandchildren.