What benefits do pension freedoms offer me?

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The pension reforms made by the government in 2015 were welcomed by just about everyone when they were accepted in parliament. Now often referred to as “pension freedoms” theynot only give you more financial options in retirement, they allow you to use the money you have saved for retirement,when you most need it.

It all looks a bit complex!

The money you have saved after finishing work will be essential for a safe and happy retirement. But pensions can be complex at the best of time. With the new freedoms there are more options and opportunities, so it can make choices how to save look like a minefield. There are ways to gain a better understanding. Websites such as Pension Wise offer great guidance. Some registered financial advisers are able to offer free no obligation pension checks, which are tailored to you and your specific circumstances.

The money you have saved for retirement

We all tend to look forward to our retirement. A time when we can reap the reward from a life at work and indulge in the pastimes that we love – a time to spend with our families and friends and be answerable to no one. But this all comes at a price and throughout our working lives we contribute to our work pension and state pension. It is the former where the changes have an effect.

Defined contribution and defined benefit pensions

The pension freedoms were initially designed to be used with a defined contribution pension (i.e., you and your employer contribute to a work pension – also known as a money purchase scheme) but even if you are in a defined benefit scheme (where the pension is linked to your salary) you can benefit from them. With a defined benefit scheme, money would need to be transferred to a defined contribution scheme.Again, it is important that you do not make any changes to your pension pot without professional guidance from a registered financial consultant.

Individuals may want to use their pension savings before they retire or, use it in more effective ways when they retire. The regulations state that you can access your pension from the age of 55. It maybe that you need some money urgently or that an income coming from your pension will help yourcurrent circumstances. Basically, there are six options:

Leave your pension pot alone until you retire. Even when reaching retirement age you do not need to take it straight away. You can delay it until you need it.
Purchase an annuity which will give you a set income.
Getting an adjustable income. When you take from your pension pot the first 25% is usually taxfree.
Taking cash in chunks. When you take from your pension pot the first 25% is usually tax free.
Taking the whole pot out. See above for initial tax implications.
Mixing any one of the above options.

Another change which came into being in 2015 offered long-term piece of mind. Many of us wish to cater for loved ones if we do not live long enough to enjoy our pensions. Before 2015 the tax rate was 55%. Now if you die under 75 that money can be passed on as a lump sum taxfree.

The great factor the pension freedoms offer is flexibility on how an individual may use the savings they initially put by for retirement. Clearly this is a great benefit, and the accessibility can be very seductive. But whatever you do, remember that taking any amount of money from your pension pot will change your entitlement in retirement – so get the facts – enjoy the freedoms, your savings, and a happy safe retirement.If you are thinking about your pension or the pension freedoms, consider using a regulated pensions specialist such as Portafina or, view the guidance at Pension Wise.