Today’s announcement that the government are giving additional rights to savers to “dip in” to their pension funds, just like a bank account, is really nothing new.
Professional advisers already know about something called phased drawdown and use it where this can be advantageous to their clients.
Taking some pension benefit as tax free cash and some as taxable income (phased drawdown) has simply morphed into taking some tax free cash and some taxable capital.
For some pension plan owners this will indeed be the option of choice at retirement.
There has been some debate about this new freedom and choice in pensions but we are broadly in favour of the changes.
However we have one concern; in our experience many people significantly underestimate their life expectancy.
This presents the risk that they will completely erode their pension fund long before they die and have to resort to using other financial resources or potentially a much reduced standard of living.
I have posted on Twitter about this a couple of times today. The first tweet made the statement:
New pension freedom. All my clients know their DOB. Not one of them knows their DOD. Need to be careful
— Nick Bamford (@nickbamford) October 14, 2014
Good Financial Planning is going to be needed to ensure that their pension funds are not eroded too quickly. My second tweet posed the tongue in cheek comment:
If I can use my pension plan like a bank account will there be an overdraft facility if I live too long?
— Nick Bamford (@nickbamford) October 14, 2014
The answer of course will be “no”
If you take capital out of your pension fund please do use it wisely.
Better still, seek professional advice and withdraw pension funds based on a carefully considered Financial Plan which makes reasonable assumptions about the future.
