Pension changes 2011
As it stands pensioners have very little choice but to change personal pensions into annuities. Even though they can withdraw some savings as cash when they retire, the majority will have to spend most of their funds on annuity purchase by the time they reach the age of 75.
The government has now confirmed however that pension annuity riles will be changing this year. The new rules will mean the end of compulsory annuity purchase for savers with a personal pension which will also mean that there will now be more leeway with the ways that pensioners can spend their retirement savings.
This now means that consumers will have more flexibility in how they choose to use their retirement savings. There are now no set guidelines for them to follow, for example, they can still convert to annuities if they want to but they will also be given further options such as income draw-down and continued pension investment.
There is also news that there may be a few tax changes for income that is left over after the holder of a pension dies too.
As it is at the moment tax on money remaining in a personal pension pot is levied at 35 per cent but this is set to rise to 55 per cent.
Although many people will be delighted with the news that they will not have to buy an annuity, the benefits of the new system seem to be loaded towards higher earners. True flexibility under the changed rules will probably only be given to those who meet the minimum income regulation. Those that cannot meet the satisfied limit may be freed from buying an annuity but may not see much change to income levels in retirement.
The current economic climate is also a big player in the outcome of personal pensions too. Those considering using their personal pension to buy an annuity may have to work harder in today’s grim climate to get a decent enough rate of return. Understanding the scenarios that affect annuity rates is important, as is using open market options to try and improve returns.