When the UK government relaxed the rules around withdrawing funds from pensions, opponents of the changes claimed pensioners would blow their retirement pots on luxury goods. One politician coined the ‘right to buy a Lamborghini’ phrase in relation to this concern.
The concern relates to the introduction of flexible drawdown or uncapped drawdown – the right to take benefits from a pension without buying an annuity.
The changes do require a level of forethought and responsibility. The changes were phased in but from April 2015 the government is removing the constraints completely.
After that date, savers will be able to access the entirety of their pension at any time after age 55, subject to income tax at marginal rates on three-quarters of the money.
This means that someone with a £100,000 pension could take £25,000 tax-free and then withdraw the remaining £75,000 to spend or invest as they saw fit.
Alternatively, savers will be to take the money in annual lump sums. From April 2015, there will be no cap on the amount of money that savers can withdraw from this arrangement.
With the rules so relaxed, it will be critical to invest time and energy in planning your retirement and making the correct decisions so that your pension pot lasts as long as you need it to.
With the different options at your disposal, it is vital that you get the right professional advice.