Pension Freedoms: Are they really all they’re cracked up to be?

If you’re at or near the age of 55, financial freedom is yours for the taking – literally. This is your chance to finally access the pension that you’ve been paying into for years.

This is an exciting milestone for many but, there’s always a but, the decision to take or withdraw your pension at this age requires careful consideration.

In this week’s blog, we look at the pros and cons of accessing your pension at 55 to help you decide what the right option is for you.

But first, let’s explain what Pension Freedoms are:

What are pension freedoms?

Pension freedoms were introduced in 2015 to allow people to flexibly access the money they saved into a Defined Contribution (DC) workplace pension.

They initially came into force for pension savers from the age of 55, but this is rising to 57 from April 2028.

With these freedoms, you’re in control of when you take your benefits from your pension plan and your options include:

• Take 25% of your pension pot as a tax-free lump sum.
• Make withdrawals from the balance as you need it (also known as pension drawdown) or buy a secure income (also known as an annuity).
• Take some or all of your benefits as a cash lump sum, with 25% being tax free and the rest subject to income tax.

Or you can choose to do a combination of these things.

Now let’s move on to the pros and cons of accessing your pension savings at 55.

Just because you can, doesn’t necessarily mean you should!

The Pros:

1. Early Access to Funds:

• Taking your pension at 55 gives you early access to your hard-earned funds which can come in handy with the rising cost of living.

2. Financial Independence:

• Being able to access your pension savings early can give you a degree of financial independence, allowing you to pursue personal goals, travel, or invest in opportunities that truly matter to you that you haven’t been able to do or afford until now.

3. Potential Tax Benefits:

•  Depending on your financial situation, taking your pension at 55 may also offer unique tax advantages.

The Cons:

1. Reduced Future Income:

•  Accessing your pension early means less time for your pension investments to grow. It’s important that you consider the impact on your overall retirement income and the lifestyle you want in retirement, as your pension will need to sustain you for longer.

2. Inflation Impact:

• In periods of higher inflation, withdrawing funds early can start to reduce the value of your pension pot. The Bank of England sets the UK base rate and is responsible for keeping this near the 2% target rate. So, when inflation is low, your pension will usually grow faster than inflation – which is great. However, when inflation is high, your pension may struggle to keep up.

How to decide if accessing your pension at 55 is right for you

Your retirement is entirely personal to you so the most important thing you need to do before accessing your pension is deciding what you want to spend it on and when.  This is the time to consider the ‘what if’s’ , ‘what for’s’ and ‘will it be enough’s’.

You also need to look at potential new costs that you don’t have now, such as Care Fees and how much you want to leave behind to your loved ones.

And while this is a decision not to be taken lightly. It’s also not something you need to worry about having to make yourself. Professional pension and retirement planning advice is just a call away.

At Joslin Rhodes, our experts have been helping Teessiders plan happy retirements for over 20 years, and we can help you too.

You can book in for a no-cost meeting with a member of our financial planning team, or you can attend our popular Pension & Retirement Planning Workshop.

There’s no time like the present to plan for your future.

If you’re ready for a one-to-one chat to find out what’s enough for your retirement and if 2024 could be the year you retire, tap here.

Joslin Rhodes Pension & Retirement Planning – Real Advice, For Real People