As the pensions market has changed significantly over the last 30 years, you may find yourself with whole array of different schemes from different providers and employers and are facing the daunting task of bringing them all together to give you cash and income in retirement.
Choosing the right way to give you an income in retirement is one of the most important financial decisions you can make. The right choice can make a significant difference to the money you will have available at retirement.
Somebody once asked ‘did the people going through the Industrial Revolution, know they were going through it’- Well do the people approaching retirement know they are going through a ‘Pensions Revolution’! They should!
Traditionally the purchase of an annuity was common place, you needed to consider if you wanted your annuity single or joint to incorporate a Widow/Widowers pension, if you wanted it inflation proofed to combat the ravages of price increases over the years, especially as we are now living longer and you need your income to last. You wanted to consider guarantee periods or even the ability to leave partial lump sums to your estate on your death.
As a result of George Osborne’s recent announcement that the ‘”biggest reform in pensions since 1921″ is taking place, the decision whether to chose an annuity as your form of income in retirement is more important now than ever.
Pensioners are now finding that they have new choices with their retirement savings as the chancellor decided to to scrap compulsory annuities. The move almost immediately wiped £5bn off the value of shares in the firms that provide annuities.
Every year about 420,000 people buy annuities worth £14bn– which convert a person’s pension savings into an income for the rest of their life – but falling interest rates and rising longevity have sent payouts to historic lows and as a result the Financial Conduct Authority instigated a review of the Annuity market and their work had established that some parts of the annuities market are not working well for some consumers and they found that eight out of ten consumers who purchase their annuity from their existing provider could get a better deal on the open market.
The new rules announced will allow people to have choice of taking all of their funds as a lump sum instead of buying an annuity. Great idea in some instances, but taking all your money out, may then leave you with no competitive income options. With freedom of choice comes responsibility and the fear is that people may opt for now rather than the future.
People often underestimate how long they will live and overestimate how long their pot will last. There is also a current recognised problem with the lack of financial literacy in the UK.
The choices at retirement due to the announcements will create choice, flexibility and The Government has said “We’re going to introduce a new guarantee, enforced by law that everyone who retires on these defined contribution pensions will be offered free, impartial, face-to-face advice on how to get the most from the choices they will now have. I am providing £20m over the next two years to work with consumer groups and industry to develop this new right to advice.”
The word advice and guidance have been under discussion since the Chancellor made this statement, but quite clearly they recognise the there is a massive need for advice more now than ever!
