Pension freedoms boost family finances
Whether or not these pension freedoms can be considered a ‘success’ depends to a large extent on how that cash is being spent.
Prudential carry out an annual study into financial attitudes and retirement planning among couples aged 40-plus.
According to their latest research, a quarter of couples plan to take advantage of pension freedoms to make sure they leave an inheritance to their families.
This raises questions about whether to take advantage of the very inheritance tax friendly structure of pensions since the freedom rules were introduced in April, or withdraw cash early to boost family finances during your lifetime.
The new pension rules introduced in April 2015 simplified the rules regarding individuals passing on unused pension savings to a nominated beneficiary when they die.
The changes mean that unused defined contribution pensions can now be passed on without a penal tax charge that would have applied to many cases prior to this April.
So from a purely financial perspective, it probably makes sense to keep cash within a pension pot if providing an inheritance to your family is the main objective.
As with all things financial however, other factors often come into play.
Prudential found that one in six couples plan to use the new pension rules to give money to their families to help them buy a new home, pay for education, or simply to fund a luxury they wouldn’t usually be able to afford.
This approach though appears to be in conflict with one of the biggest concerns expressed by those planning for retirement; namely, running out of money before the end of their lives.
Running out of money in retirement is a big concern for around a third of retirees, according to Prudential.
Other post pension freedoms concerns include making mistakes in retirement planning, making decisions that will lead to unnecessary tax bills, being faced with too many retirement income choices and falling victim to fraudsters.
There is a role for advice in this, with Financial Planning helping to ensure that you don’t run out of money in retirement, invest your pension pots appropriately, avoid paying unnecessary tax, understand your retirement income choices and making sure your hard earned cash doesn’t fall into the hands of fraudsters.
Here at Informed Choice, we live and breathe retirement planning. Do speak to us to understand your retirement income choices.