FLEXIBILITY is certainly the overriding theme when discussing the recent changes to pension legislation. But what does this mean for you and the options you will have when you need to draw on your pension? writes Jo Jackson, the head of financial planning at Brewin Dolphin in Newcastle.

Will it encourage you to invest more in pensions as a long term savings vehicle?

Pensions now, more than ever, provide for a very tax efficient form of savings. Where else can you get tax relief on contributions, tax free investment returns and a 25 per cent lump sum out tax free? For a higher rate tax payer this means a £1,000 contribution will actually cost you £600 – a 66 per cent investment return!

Almost three quarters of under 45’s with pensions have no idea what their pot is worth and what it could provide for them at retirement. Between 1960 and 2010 the average lifespan has increased by around 10 years for a man and 8 years for a woman and one in three children born this year will reach their 100th birthday. With life expectancy rising our money has to work harder for longer so any help we can get with regards to boosting our savings is welcome.

The main change that you will see from April 2015 is that you will be able to access any or all of your defined contribution pension fund as cash, with 25 per cent still available tax free. The need for you to purchase an annuity will be gone and any restrictions on the level of income you can draw each year will also disappear. This means that taking advice is more important than ever if you want to make sure that your fund provides an income for as long as you require it! You may also want to consider the tax implications of taking large drawdowns as you may end up adding to the extra £4bn in income tax HMRC expects to receive by 2020. The rate of tax you will pay could range from 20 per cent to 45 per cent and this will depend on what your level of income is including the amount taken from the pension.

This flexibility may not be available to those who have a Defined Benefit scheme but should be available to any Additional Voluntary Contribution (AVC) “pots”. If this flexibility is not offered you may be able to transfer out (as long it is a funded scheme) up to the normal retirement age, however, it is important that financial advice is taken as for most people they may be best sticking with what they have got.

Although it will no longer be compulsory to take an annuity at retirement, the security these plans offer will mean that they still provide the right solution for some people. The Government have announced that in line with its commitment to deliver a more flexible pension regime they will remove some of the current restrictions around annuities to allow for the development of more flexible products.

Retirement is no longer just about your pension fund, you need to look across all of your assets and see how they can work for you in the most tax efficient way. At Brewin Dolphin we take an integrated approach to protecting and growing your wealth that combines our skills and experience in both discretionary fund management and financial planning. We recognise that every client has different goals for their finances and we use this information to develop a sound strategy for managing your financial affairs and safeguarding your long-term wealth.

Jo Jackson is the Head of Financial Planning at Brewin Dolphin in Newcastle. For a free no-obligation consultation with Jo, tel: 0191 230 7155 or email joanne.jackson@brewin.co.uk

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change.