The people have spoken and they absolutely love freedom! Up to date figures show withdrawals in the 2017/2018 tax year were worth £6.7bn, the highest amount since the pension freedoms legislation was introduced in 2015.
Before the reforms, the majority of retirees would buy an annuity with their pension fund, which would guarantee them an income for life. The pension freedoms now mean that those over the age of 55 have full access to their pension savings and more flexibility over how they withdraw money from their pension pot.
Evidently pensioners are starting to embrace this opportunity, with a total of 220,000 making half a million withdrawals between them in the first quarter of 2018. That’s an increase of 20,000 from the preceding quarter. Originally, there had been worry over isolated instances of retirees blowing their entire pension savings on luxury items and services, but sensible and widespread use of pension freedoms is now in full swing.
It’s true that while savers have more flexibility and freedom as a result of the legislation, it does lead to them having greater responsibility. This means that it’s more important than ever to follow sound financial planning advice. Indeed, research has revealed that some savers lack the knowledge to enable them to make the best decisions concerning their pension pot. Policymakers and the wider financial services sector are now working to address this.
The value of your investment can go down as well as up and you may not get back the full amount invested, which would have an impact on the level of pension benefits available. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
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