Your whole pension pot is yours the day you retire

[Technical]

I completely understand why this has been done and agree fully that an alternative to poor performing annuities needed to be found but am I alone in thinking this is a bit scary? (I know I'm not because I heard a Labour politician saying it but I thought it first!)

It was my first comment to Dh when we were watching the news. We know that legislation/incentives are required to "force" people to save for their retirement. If those same people are given a large lump sum the day they/we retire, what % do you think will still have funds to live on, should they live another 30/40 years?

How many of the general public have the skills/knowledge to invest it safely and ensure their income keeps place with inflation, especially bearing in mind that very many will live several decades after retiring?

I dislike the term PENSION POT does anyone else?

I always think it sounds like we're getting a big pot of gold.

My main concern is that they will eventually decide to treat withdrawals in their own category and apply tax at a higher rate than the income tax rate so people will be pushed back towards annuities as the automatic investment choice to avoid tax penalties.

This will encourage them to buy more property BTL and price out the younger generation even more.

Aren't you a BTLer, Noddy?

Not exactly. If your pension pot is say £400,000 (which buys an annuity of about 20,000 a year before tax) then if you want that all now the state taxes it at 45% and you receive not your whole pension pot but only about half of it .

If your pension pot is only £10,000 that would give you a pension of about £500 a year and if you take it in cash instead then yes it might be the "whole pension pot" you get. However for anyone with a biggish pot the state will be confiscating about 45% of it before you get your hand no a single penny. So you are given say a 40% tax break for investing in it and when you draw the money out they take 45% away. Great deal this pensions lark......

No have never let a property in my life nor would I

Oh I'm getting mixed up - you renovate and sell on (please say you do and I'm not totally losing the plot!). Why would you not BTL? I ask because DH and I are thinking of doing it.

I think rents need to be regulated and fixed and then I think if you have cash BTL is fine IF you plan to let it at a fixed rent and not to just cover your mortgage. It takes houses that would have suited first time buyers out of the market and pushes prices up.

Taz, I think the new plan is exactly that really - that currently you take 25% tax free and buy an annuity with the 75% left (or use 100% to buy an annuity). Under the new rules if you don't take an annuity you are taxed on 100% of the pot at the various rates so eg if your pot is worth £500k most of that is taxed at 45% even if your current tax rate is 0% or 20%.

I remember because I'm old the days before rent controls were lifted. There was virtually no property to let until assured shortholds were in. In fact I know someone who pays peanuts still under the old rent acts for a flat by Bond Street tube station. In those days people just stopped letting at all as rents of £10 a week and tenants with a right to stay for life. If you do do rent controls then you would need to build a huge number of state owned property to let at low rents to all those people renting including the young professionals in London who aren't ready to buy yet. They used to have to sleep on floors and now at least there are properties around to let. (By the way most buy to let landlords only have one property - like my daughter and she cannot afford to live in it - and most of them don't make a profit at all or not much of one after they pay the costs of letting, interest, repairs etc. The tenants who are obviously intellectually challenged assume the landlord keeps 100% of £1300 a month when in fact the landlord might keep none of that. The sums are not hard to do)

I'm nearly 40.. Most of my friends can't trust themselves with a credit card and next accounts .. These are normal working people . I have questioned them about it and how they don't control themselves and they just say they can't !! I have 2 credit cards , a next account and they have no balance on , I use them to get points and ease of use .. It's simple to me that what I buy on credit I have to pay back so no point on maxing it all out !! However a lot of people are like my friends and it will all be spent and then the state will have to pick up the slack... Very very bad idea !!

Jane Yes, I know, but what I'm worried will happen is that they will up the tax rate for those of us who effectively want to draw down in smaller amounts and not take the lump sum - e.g. one year I decide I want to take £5,000 to boost my income then the next I decide to take £20,000 to put into another non-annuity investment vehicle. Lets pretend those withdrawals keep me within the 20% income tax bracket. My concern is that they won't stick to the income tax brackets but will think, "Oooh, we could put an extra 5% tax on drawdown amounts", then all of a sudden I'm paying 25% tax on those amounts.

Overall I'm over the moon by the change and already have DH investigating whether I would get any family boost to a personal pension if I use his employer, but I do worry that future governments will see additional tax raising abilities from it.

It all depends whether you think people should be trusted to make their own decisions. The liberal/conservative tradition is that the individual should be able to choose. The labour/socialist tradition is that the individual shouldn't be trusted and the state has to decide for them.

Most people will not go out and buy silly things, they may pay off their mortgage, help children with deposits etc.

Those who fritter it away it will end up on the state pension but will they have been the people to build up a significant pension pot in the first place...

I'm mildly hopeful that this will lead to more transparency and better understanding of annuities and the products available, and better provisions because there will be more market forces at work on annuity providers.

But the fact remains that lots of people are just financially unaware, and it seems to be a subject that people just don't want to engage with...so people land up following the least difficult path (currently - take the annuity offered by your pension provider without researching the market / future - take the cash)

I don't understand why people are so reluctant to understand this stuff - or seek/pay for advice if they need it.

I saw a programme a few weeks ago where a woman has a TOTAL pension pot of £10k...and she seriously expected to retire on £30k a year!!

Maybe people should be made to get financial advice before they do anything...

You won;t be prevented from buying an annuity. You can buy and annuity now from any money you like it isn;t a pension thing its just the mechanism by which private pensions happen to operate.

I think its highly likely that your pension provider will offer you the choice of buying an annuity rate for your pension pot or taking the cash.

Some people will of course run through the lot in a few years but it may also change the attitude to being financially responsible after children see their parents run out of money at 75 and live for another 20 years on minimum "wage".

But its a hard way to learn a lesson - I'm not sure how I feel about it to be honest.

As a financial person I'll be sensible with mine so it will pay me as annuity rates should become much more competitive and also it will be far better for people with chronic or terminal illnesses who can take thier money and leave it to whom they like.

My dad is going through this right now and I agree annuities are confusing and a minefield. Me and my DH are helping him, my DH works for the Navy and handles very complex documents and even he found difficult going through all the bumf.

Although the age where people are getting more comfortable with computers is increasing (even a couple of years ago a lot of people over 60 didn't have a computer) at 65 like a lot of people his age my Dad only used his computer for small things that's why we are helping him

As someone said upthread the only alternatives have been staying with the original provider and not getting the best deal or forking out for a financial advisor.

We have been going to comparison websites and getting quotes and the difference between quotes have been very interesting but all of them have quoted higher then his current provider.

Even the way companies want ID are totally different some say they need originals some say they will accept certified copies signed by a solicitor or GP so you can understand why older people find it so difficult.

As it happens dad had the bright idea of speaking to a friend who has an annuity with the same amount of money and with the same type of medical issues and found that the provider he used was already our second favourite so we know we are on the right track.

I find the attitude of some of the usual baby boomer bashers disgraceful actually it's either oh they are going to spend it on fast living and holidays and then they will be whining they have lost it all and want to get benefits that young working people will be paying for when the majority of these pensioners will have been working for 40/50 years and have paid enough into the system to get help when they need it.

Or they are going to be buying property as BTLs and kicking young working people off the housing ladder.

Actually in my Dads case its only 60k not enough to buy property, and at 59 my Mum still has another 7 years before she gets her pension and will be working so even if my Dad was able to get his 60k out now and blow on a fast car or what ever he wouldn't be going on benefits ( I don't class his State Pension that he worked for over 40 years to get a benefit no matter what anyone says)

Tax, that's been my view for the 12 years since I decided to stop contributing. The rules are changed all the time. When I started my pension the law said you could draw it at 50. What if I had made life plans based on that? The state changed it to 55. They are changing it to 57 in 2028 too and there used to be no maximum in the amount you had in a pension then they brought one in and it has gone down and down and down. if you get over that top figure you are subject to confiscatory tax rates. People need to register by 6 April 2015 if they are on more than about £60k a year with a good work pension where they may be over the equivalent value of £1.25m (not that mine is that high) but these are all reasons why I decided to stop paying in and I'm glad I stopped.

I would rather be taxed on receipt of the money by income tax than when I take it out later. That of course is not best advice for many people. I don't have an employer paying anything in and I will work for life and won't need a pension but you are right to be concerned the rules might change later.

That is one reason at 55 I want to take my 25% tax free out of the pot. It looks like from Q&A in the FT yesterday you can do that and draw the rest out subject to 45% tax (or 40 or 20% if it is smaller pension pots) so might even do that just to get my hands on the money (which in my case would be saved or put in property, not wasted).

Jane I think we are very similar! I left a final salary scheme nearly 6 years ago and have refused to start a personal pension for reasons along the lines of why you stopped. Right now I am going to start to contribute- it's the appeal of having the pot remain as part of your estate that has won me over. I know you can end up ahead in the annuity game but I don't like the odds and with the current low rates would rather keep my money.

Under current law the pot can also remain part of your estate if you don't take an annuity so nothing had changed there. I believe it is subject to 55% of it going in tax - when you die which is worse than 40% inheritance tax.

Yes, it's taxed at 55% for the remaining lump sum if you use drawdown and die after 75, so yes, I should have clarified that I am happy that it is now part of your estate in a manner by which you don't have to be hammered by taxes if you are planning on living past 75.

I heard on the radio that the policy was adopted after looking at the Australian system. Some retirees blow their money, but most are sensible. FT article here

It seems to me that the whole point of the pensions industry (preferential tax and NI treatment on contributions, to encourage and reward thrift for your old age) has now gone. I know there have been some wizard schemes to take advantage of the rules by the higher-paid, and the rules have been tinkered and tinkered to get more complicated and costly, and to give the rich something to moan about.

It will be interesting to find out what the unintended consequences are. For the moment we can only guess.

The Government are not planning to remove the right to take 25% of the accumulated fund tax free. Amounts taken in excess of the 25% will be subject to your marginal rate of tax.

There will be a requirement for all scheme members to receive face to face advice at the point of retirement and before exercising any options.

The options are not simply to annuitise or take cash, you will also be able to "drawdown" on your fund - that is, leave it where it is and take periodic amounts out.

The hope is that this will make the annuities market more competitive, but I am not sure how the government actually believe that will happen. The real result will probably be the collapse of the current annuities market and a new, niche market emerging.

The government has looked at other jurisdictions which allow this and report generally positive outcomes. However, I am not sure how far they have considered the availablity of the welfare state. If you look at a country like the US where you can currently do this, those in need would not spend the entire amount on something frivalous as the state would not pick up the cost of their retirement. However, here the position is wholly different. If you spend all of your retirement income, the state is still there to help so it may be that these changes will see considerable unwise expenditure.

as usual we have the whiny anti-landlord-all-property-should-be-free brigade here. Reminder that unless you live in a hut you built yourself, you are paying SOMEBODY for it.

the average pension 'pot' is £30k. That will only buy a hut, even if all of it is used. This move will have NO effect on property purchases.

'mmmm, I don't know about that.

Let's suppose there are a hundred thousand people who each have a hundred thousand pounds, and are each convinced that BTL is the best way to make a fortune. Won't that (1) bid up the prices of houses (2) reduce the pool of low-priced houses available for purchase?

You'll get a lot more BTLers, for a lotof people, this is a form of investment they can easily understand, they understand house buying, they understand the risks that house prices might fall, they understand rent incomes and landlord responsibilities, it's not scary, whereas a lot of other investments are confusing, aren't something that average people have been involved in or understand. The risks of the value of their investment (not just the income it generates) falling are ones they don't understand and would have to trust the person selling it to them.