Mitchell Charlesworth warns of pitfalls following Government pension rule change

North West accountancy firm Mitchell Charlesworth is warning of potential pitfalls if people fail to plan properly for retirement, following sweeping pension changes.

New guidelines now make it possible for pensioners to withdraw their entire pension pot in a single lump sum.

But Mike Wall, a manager within Mitchell Charlesworth’s Wealth Management department, said this approach is fraught with danger unless properly planned – especially as only 25 per cent can be withdrawn tax-free.

“Just because you can do something doesn’t necessarily mean you should,” he said. “That rule certainly applies where the drawing of pensions is concerned. Historically, there has been a level of reluctance to save into pension schemes because of a perceived lack of flexibility. That’s all changed now - but this has created two major potential drawbacks.

“Firstly, a lot of people are getting caught out by the amount of income tax they have to pay if they draw on more than 25 per cent of their pension pot. In some cases this can be as high as 45 per cent and, although there are provisions for reclaiming overpaid tax, this can prove a complicated process.

 Mike Wall 2014

 “The other big danger is that by withdrawing an entire pension pot it can be spent quite quickly, leaving people with little or no money to live on. Statistically, people are living longer now too –for those who make it to age 65, the average life expectancy thereafter is 88 or 89 years old - and this must be taken into account. It is possible to think you are playing it safe and still run out of money.”

The implementation of the new pension rules – which came into force in April 2015 – has already seen a £2bn increase in the amount drawn from UK pension schemes.

Chancellor George Osborne hailed the rule change the “biggest in 100 years” and “a revolution”.

But Mike Wall said Mitchell Charlesworth, which has offices in Manchester, Liverpool, Warrington, Chester and Widnes, now expects to see an increase in the number of pensioners seeking expert retirement planning advice.

“The key to managing a pension pot in retirement is proper planning and should start at least 10 years ahead of retirement,” he said. “At Mitchell Charlesworth we look to undertake a full review of an individual’s current and expected income and expenditure as well as their attitude to risk. We offer a holistic approach too, looking at the value of all of people’s arrangements and investments – not just their pension assets.  Retirement planning should revolve around an entire portfolio of assets which, if required, can be used to provide additional income or access to capital.

“People should be very careful about who they speak to about their pension schemes too. Financial regulators have expressed concern about the number of so-called ‘pension liberators’ who often charge high fees or set up plans which will allow individuals to inappropriately access their funds. Mitchell Charlesworth is a trusted accountancy firm which has been offering a wide range of financial services for more than 125 years.”

For more information contact Mitchell Charlesworth on 0151 255 2300 or email Phillip Ward


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