With the new pension freedom rules being introduced in April 2015 savers will be able to access their pension fund at any time from the age of 55. This means, if you wanted to, you could withdraw all of your pension savings as cash, subject to tax, and then spend it in any way you wish.
The Government is passing the responsibility to the pension holder to ensure that their pension money lasts through retirement. This means the safety net of restrictions, such as having to take most of your retirement savings in the form of an income will be gone.
Industry experts are concerned that some people retiring this April may feel instantly rich, for the first time in their lives, as their pension money that was locked away becomes very accessible. There are concerns that the over 55s will go on an unstoppable spending spree.
Many people are aware there are a number of pension scammers waiting for this event to begin and this is already of big concern to pension regulators. This is expected to increase as retirees have more options for using their pension savings. These scammers are expected to target the over 55s with promises of high returns in exchange for cash from small pension pots, promising to invest in complex structures which may seem valid and trustworthy, but turn out to be non-existent follies.
How to make your pension last through retirement
1. You have to remember that your pension savings will have to see you through for 20, 30 or even 40 years. So work out the pension income you are likely to need by identifying your fixed living costs, then calculate how much you need for other essentials . This, when totalled, is the bare minimum you require, but don’t forget to factor in inflation.
2. Never go it alone, always take professional financial advice. Simple actions like withdrawing your pension in one lump sum could have significant implications such as losing a large sum in tax. Also, taking a large withdrawal and putting it into a cash savings account or trying to invest the money yourself could be highly risky without knowing all the factors.
3. Appreciate the stock market rises and falls. Factor this in by investing sensibly and making planned withdrawals, then your portfolio should continue to provide you with a reliable income. It will be important to find the right product or investment that can meet your income plan and needs, but one that is not risk loaded
4. Always have a tolerance band built into your financial plans, as they rarely come in bang on target. Unless of course you are buying an annuity, which provides a guaranteed income for life, then you are guessing your life expectancy and hoping that your money lasts your lifetime.
5. Never underestimate inflation pressures, they are there and always will be. Costs generally over time always increase.
7. If you are ever concerned or worried about a possible scam pension proposal, you can inform the Pensions Advisory Service, Action Fraud, or the FCA or speak to your financial adviser.
The value of pension and the income they produce can fall as well as rise. You may get back less than you invested.