In his 2015 Spring Budget, then-chancellor George Osborne introduced sweeping changes to the way that pensions are taxed. The new pension freedom rules have led to the over-55s being faced with a variety of different choices when taking and investing their nest eggs.
Prior to April 2015, when most people with a defined contribution pension reached retirement age, the only option available was to buy an annuity, which involved using pension savings to purchase a guaranteed income for life.
Roll on five years, it now means anyone aged 55 and over can take the entire amount of their defined contribution pension scheme as a lump sum, paying no tax on the first 25%, with the remaining taxed as if it were a salary at their Income Tax rate.
Before this, tax restrictions ensured that many of the people retiring each year were required to purchase an annuity – a product provided by insurers which turns a pension pot into a secure retirement income for life. The problem with some annuities is that they have become poor value, particularly for savers who bought the wrong kind.
Official figures  published show that £35 billion of taxable payments has been withdrawn by 1.4 million individuals since freedom and choice was introduced. Through Q1 2020, £2.5 billion was withdrawn from pensions flexibly - a 19% increase from £2.1 billion (Q1 2019).
In the coming decade, a record nine million people are set to enter the arena of the pension freedoms at age 55 . This is more than expected to be seen in any decade that follows, with the 2020s likely to see peak pension freedoms.
With pension freedoms’ popularity continuing to grow and savers being entrusted with increased individual responsibility, it is worrying that 94% of adults are flying solo, not seeking any financial advice each year.
The Money and Pensions Service (MAPS) have launched its strategy with a vision of ‘everyone making the most of their money and pensions’.
If you are considering your pension freedom options, the future has ‘got a lot more interesting’. Remember: take your time, and seek professional financial advice. The pension freedoms are available from age 55, but there is no need to act at age 55. And your time in retirement may be longer than ever before.
There are a number of different options to take your defined contribution pension pot:
Combine your options - You can also combine different options. However, to do this, you would usually need a bigger pot.
Make sure you don’t fall victim to scammers. Your pension is likely to represent the biggest single source of your private wealth, so the attraction for scammers is obvious. Since January 2019, it has been illegal to make these cold calls. See the FCA’s ScamSmart website for more advice.
Think about the matter of tax. How will this impact on your particular situation? The way in which you access your pension savings can have significant implications on how much tax you may need to pay and on the income in your retirement.
Finally, don’t forget the importance of obtaining professional financial advice. You may have been saving for 30 years, so take more than 30 minutes when considering your options. Let us provide you with the professional advice to ensure that you end up with the best options for your particular situation.
The way you take your money for retirement will have a big impact on how long it will last – and how much tax you pay. To discuss your options or to find out more, contact us to arrange a meeting.
 www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/ populationestimates/bulletins/annualmidyearpopulationestimates/mid2018