OM Togher looks at the recent pension changes...
This April sees one of the biggest changes to the way some pensions work.
The pensions that are changing are the sort where a lump sum is built up, and this is used to purchase a pension when you reach your retirement.
These are called ‘defined contribution pensions’ or ‘money purchase schemes’.
The rules are changing to allow you to access your fund or your money in a much more flexible way.
At the moment you are required to purchase a special type of insurance policy – called an annuity, which provides a regular income throughout the rest of your life.
One of the problems with this system is that the values of these policies were not always very good at the time when you were forced to buy them.
The old rules also only allowed for a portion of your fund to be withdrawn on your retirement.
With the current low rates of interest, these policies have tended to have even less value than in past years.
The new system means that when you reach the age of 55 you can start to withdraw money from your pension savings, as and when you like.
There are still going to be limits placed on you by individual pension providers.
To help you make sure that you know what is best for you, and to help you understand your options – the government is setting up a new guidance service called Pension Wise.
This will be available to people as they approach 55 years of age. (The Citizens Advice service is providing the face-to-face part of this service.)
Investing some of your income in a pension means that the government will usually make an additional contribution to your savings fund by way of tax relief.
This is in addition to anything that your employer might also make.
This means that as you approach 55, these schemes will for many people start to become very effective ways to save.
The important change is that you will be able to make several, and regular withdrawals after this age.
One of the problems with the new system for people who qualify in the first year is going to be that not all pension companies are ready for these changes.
It may mean that for some people they will need to move their fund to a more flexible provider, if they want to take advantage of all these new freedoms.
This advice has to be general – you should use the new guidance service before making any decisions about your pension savings – and remember that there are lots of other tax and benefit implications for the decisions that you may make.
For more information go to www.pensionwise. gov.uk. If you have any problems, we are here to help you. For help from Salford Citizens Advice visit your local bureaux in Eccles, Irlam and Cadishead, Salford City, Swinton, Walkden or at Salford Royal.
Telephone our advice line: 0844 826 9695 (if calling from a landline), or 0300 456 2554 (from a mobile), which is open on Saturdays.
You can also follow us on Twitter for regular news and advice updates, or by going to www. salfordadvice.org.uk you can find out about all the advice services in Salford, which have come together to make getting advice easier, or visit our website at www.salfordcab.org.uk.