Earlier this year the Government announced the most radical changes to pensions in more than 100 years. The new reform, pension freedoms, means that people are now able to release funds from their savings when they turn 55, taking as much or as little as they want at a time.
Following the reforms, the Association of British Insurers (ABI) has announced that the income drawdown market has increased, with more people accessing their pension cash. Meanwhile, annuity sales have significantly dropped over the past six months as people are no longer ushered towards them.
ABI has released key facts that have emerged since the pension freedom reforms in April 2015:
- There was an 80% increase in calls to pension providers in the first month following the reforms
- In the first three months, pension providers across the country, including here in Yorkshire, paid out nearly a staggering £2.5bn in cash and income drawdown payments
- Around 60% of all cash lump sums paid out to individuals across the country in the first three months were to people younger than 60, and around 80% to under 65s
- In 95% of cases where individuals accessed a cash lump sum, they withdrew the entire fund
- Pension freedom cash that was withdrawn in the first three months represented less than 1% of all pension funds held by over 55s
Unsurprisingly to the Heritage financial adviser team, people around the country, even here in Leeds and surrounding Yorkshire areas, have been accessing their pensions following the freedom changes. We were also pleased to see that the statistics revealed that people were taking out relatively small cash lump sums – meaning that people are being sensible when dealing with their finances.
Our financial advisers recently made Yorkshire residents aware that although pension freedoms were a positive reform from the Government, only the first 25% of cash taken out of pensions is tax free. That means the rest will be taxed as income at their marginal rate.
Needless to say, it is possible for Yorkshire investors to take the whole value of their personal pensions out as a large lump sum. However, without the advice of a financial planner such as Heritage we wouldn’t recommend it as you may be hit with a staggering tax bill at the end of it.
If you are based within Leeds, Wakefield, York or any of the surrounding Yorkshire areas, and you are looking to understand the new pension freedom reforms, or you are looking for a financial planner to help plan your retirement and manage your money, then Heritage may be the right team for you.
For a free 30 minute consultation please call our Morley office on: 0113 350 2080.