Recent changes to the pensions funds and schemes have meant retirees are able to withdraw £30,000 from their pension in one go. This has sparked a debate regarding new access to savings and the ways pensions might be spent.
On the 4th June 2014, Queen Elizabeth II announced the finalisation of drastic changes to our pension funds and schemes. These changes, already popular in European countries, gives the new retiree the option to take £30,000 in a cash lump sum from their savings, and allows a 30% increase on that sum.
The new pension schemes take away the interpersonal and defined contributions, developing into a strategic sharing, communal ‘pot’ of funds.
It starts with a significant change; if the employee has been paying into a workplace or personal pension scheme, the pay-out will now be based on the performance of the fund rather than the final salary.
This allows the withdrawal of the full amount to be extended from £18,000 to £30,000, with 25% being tax free. The remainder attracts income tax from your rate, down from the 55% tax charge previously.
By having a ‘pot’, administration fees which have been nibbling at the fund to maintain it, will now be considerably less, giving a 30% chance of increase to the pension amount.
What do the new changes to pensions funds mean for retirees?
This change has sparked ideas that by having easier access to the fund, newly retired people may indulge and ‘blow’ their pension pot, leaving pittance in the wake of people living longer.
As Pensions Minister Steve Webb has stated “if people do buy a Lamborghini but know that they’ll end up just living on the state pension, that becomes their choice”.
The premise of the ‘communal pot’ is an advantageous preposition, allowing pensions to actually be a pension; a lump of disposable income accruing from years of investment, without the unnecessary loss of annuity and ‘flexible draw down’.
Holland, having first set this up has had a 2% loss of inflation. However, by keeping companies in this change together, and allowing a steady influx of incoming and withdrawal of funds, this new proposal will allow a consistent, worthwhile and steady inflation. This will thereby allow pensions to act accordingly for all workers when it comes to that time.