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You have probably read in the media about the proposed forthcoming changes to the rules regarding pension plans, announced by George Osborne in his recent Budget. You may be wondering how these rules will affect you, and what your options will be at retirement.

The aim of the changes is to make pensions more flexible. Many people have saved religiously into pensions all of their working lives, only to find that what seems to them a large sum of money will only produce a very modest income at retirement. This is due to low annuity rates, which govern the amount of income you will receive from your pension. Annuity rates have been low for many years and most experts do not believe this will change any time soon. Hence, the need for changes to the rules.

Another option that has always been available is income drawdown. Rather than using your pension pot to purchase an annuity, you leave the funds invested and simply draw an income from them. Previously this was only available to those with larger pension pots, but the proposed changes will mean this is available to everyone. Rather than being restricted in how much you can withdraw, you will be able to withdraw as much as you like – even all of your money if you wish to do so.

This poses the worrying question of what will happen if everyone withdraws their pension pots and then blows the cash on a fast car or the holiday of a lifetime – who will then fund their retirement? The Government? Hmmm……

All of these changes will highlight the need for individuals to take proper financial advice. Having a financial plan is more important than ever to identify what you would like your retirement to look like, and how you will afford to live that lifestyle. What is certain is that you cannot wait until you are retired to plan for your retirement – the earlier the better.

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