The Pension Changes – How Mistakes Are Still Being Made


Thanks to the changes in pension legislation that came into effect in April 2015, those who have defined contribution pension plans have more choice available to them than ever before.

When they reach 55 they have a variety of options; they can leave their pension plan untouched, purchase an annuity, take an adjustable income (flexi access drawdown), take their cash in instalments (uncrystallised funds pension lump sum), or take their entire pension pot in one lump sum.

Many people are still finding the options open to them confusing and some are making choices that may not be the best options for their circumstances. Here’s some general guidance on accessing your pension.

Don’t Take Out Too Much Cash

Some people are withdrawing considerable sums from their pension and putting the cash into a deposit account. With interest rates low and inflation rising, this will erode the value of their savings. Options like income drawdown allow you to take the amount of money you need, leaving the rest invested in your fund.

Taking your whole pension pot as a lump sum could be a very expensive mistake. Although the first 25% will be tax-free, the rest will be added to your income for that tax year and could mean that you find yourself paying a much higher rate of tax and you will be left with a lot less money for your retirement years.

Annuities May Not Be Your Best Option

Before the rules were introduced, it was in effect compulsory for most people to take an annuity, but this is no longer the case. Annuities have become steadily less attractive as rates have dropped substantially. There are other options to consider, such as only using part of your pension to buy an annuity to produce a secure income to cover your essential outgoings and considering other ways to produce a retirement income, such as income drawdown.

Don’t Underestimate How Long You May Live

Don’t be tempted to take high levels of income from your pension, or withdraw large lump sums or make choices that will help your family more than you. When making decisions, you need to think about your income needs for the rest of your life and possibly your spouse too. With life expectancy on the rise, you could have many years ahead of you.

The Biggest Mistake of All – Not Taking Independent Professional Advice

Your pension pot is probably your biggest asset after your home, so it makes sense to get good advice when you’re thinking about taking money out. Our advice will help you see the bigger picture and plan effectively for the future.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Fees and tax treatment depend on the individual circumstances of each client and may be subject to change in the future.

It is important to take professional advice before making any decision relating to your personal finances. Information within this blog is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation, are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of investments can go down as well as up and you may not get back the full amount you invested.

The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.

Government U-Turn on Probate Fee

When the general election was announced, one of the measures immediately put on hold was the proposed increase in probate fees.

The planned fee structure would have meant that estates valued up to £50,000 wouldn’t have incurred a fee, whilst those worth more than £2m would have been faced with fees of £20,000. It was widely viewed as a wealth tax and heavily criticised in the media.

An executor appointed under a Will gains the necessary authority to distribute the deceased’s estate by obtaining a grant of probate. Currently, there is a flat fee of £215 when an application is made by an individual, and a fee of £155 if it’s made by a solicitor.

According to the Ministry of Justice, the steep rise in fees is needed to provide funding for the Courts and Tribunal Service. This means that another source of revenue will be needed to replace the projected £300m in income that the change in fees would have generated.

We will follow up on this story as events unfold.

Fees and tax treatment depend on the individual circumstances of each client and may be subject to change in the future.