Changes are not all they seem

Don’t live to regret the pensions ‘freedom’

If the Chancellor was wondering how to raise the Income Tax take and be feted by the Grey vote and Personal Finance Journalists he struck lucky: just announce pensions and tax freedoms for thousands to take place before the General Election and laugh your way to the Bank even if our national overdraft soars.

From April, experts calculate 400,000 pension savers are eligible to take advantage of new rules he’s announced. And judging by reports the bulk of pension investors are licking their lips in anticipation. So why am I critical of this so called freedom? Am I , as others suggest , a supporter of the “Nanny State”?

Let’s look at his changes. From April , if you’re 55 and over , you’ll be able to whip out 25% of your pension fund  tax free ( which you can do now anyway) AND remove what’s left in the kitty without limit. Brilliant.

But 95% of the 353,000 annuities bought by the over 55s needing extra income came from taxable kitties of under £100,000 with the average below £20,000. For these folks the income from these annuities is tax free thanks to personal allowances.

Now, with 400,000 champing at the bit to pull out their pension pots early, most will instead pay tax. How much? Figures bandied around range from £1.6 billion in year one, to more than £3bn over 4 years.

Much  has been made of the tax freedom for your nominated beneficiaries if you die while receiving some form of regular income from your pension pot , and if you snuff it before taking income prior to 75.

Actually the latter situation has applied for donkeys.  But I ask you this … given there’s been broken promises from UK Governments on pension law constantly since 1987 , with more than 550 changes of mind , chopping and changing year after year, can you be sure if you jump into the latest “giveaway” you won’t regret it later when the next Chancellor realises he needs more tax and needs it now?

Already when we prepare a Pensions’ Choice Report it comes to more than 20 pages plus a 25 page appendix . The issues raised by Osborne’s “freedom “ in yet another 60 page Bill simply ratchets up the complexity facing wouldbe retirees. To claim ( as they do ) a 30 minute chat over the phone from a part time Advisory Service will be sufficient is frankly preposterous, if not dangerous.

I’ve lost count the number of times I’ve tried to explain to “experts” that only an independent adviser can be relied upon to act as agent of the client. In other words to put the client’s interests first.

Take my word for it . Be very very careful about jumping into these new so called freedoms. Take time and good counsel, or you’ll end up like many thousands of Australians who had such an opportunity a few years back and find they’ve run out of money already early in their old age.

Alan Steel is chairman of Alan Steel Asset Management

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