Pension Freedom

Recent pension changes have focused on the fact that people approaching retirement age can now use their pension pot in more flexible ways to achieve pension freedom.

And the very concept of retirement at a certain age is now being rethought, as individuals live longer. In addition, fewer people have generous pension provision of the type provided in the past by large employers, and final salary pension schemes.

As the government declares on its own website: “Default retirement age (formerly 65) has been phased out.” And it is now moving upwards, the age at which an individual will start receiving their state pension. The number varies but, for example, a woman will need to be at least 63 in 2016, to receive the payments. And by 2020, both men and women will need to reach 66 before they start to get a state pension payment, as the start date continues to ratchet up.

For those with a private pension, one option is to use the funds, previously committed to purchasing an annuity, in more creative ways. Some advisers have suggested planning to use a cash lump extracted from a private pension fund, to “bridge the gap” until the state pension starts being paid. It may be possible to purchase a fixed term annuity, for a period of, say, 10 or 15 years, to provide additional payments between early retirement, and the moment when the state pension payments start to be delivered.