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Pensions freedom – The basics
00:04 - Russ Mould
Hello I'm Russ Mould AJ Bell's Investment Director and I'm here with our Head of Platform Marketing Mike Morrison to discuss the new pension freedoms you will be able to enjoy from the 6th April 2015.
00:19 - Now in this second section we are just going to catch up with a few of the most important things you need to know before we really get stuck into the details and the first of those Mike is how old you have to be before you start thinking about or even enjoying these new freedoms.
00:30 - Mike Morrison
So we are talking about pensions and pensions you've got tax relief on a pension and the quid pro quo for getting tax relief on that pension is that you can't draw it until you're 55.
00:42 - So 55 is that cut-off date.
00:44 - If you're below 55 you can't touch your pension you can plan for it.
If you're above 55, 55 or above you can start enjoying it.
00:49 - Russ Mould
And is that age going to change at any stage?
00:50 - Mike Morrison
That age will change in line with longevity, living longer and is expected to go up to 57 from about 2028.
00:57 - Russ Mould
Oh so there's a while to go yet.
00:59 - Mike Morrison
Exactly, but just make sure you know where you are in that age spectrum before you start making too many plans.
01:03 - Russ Mould
So 55 is the key age. Now obviously we are all getting very excited about this date right behind us here the 6th of April 2015. Given that that date is very near even if not everybody watching will be 55. Does everybody need to dash up to AJ Bell and say “right I need to do something, I need to do it now”. Is it going to be a mass stampede of people trying to accessing their pension or should there be?
01:23 - Mike Morrison
I don’t think there should be. For me the best way is almost to stop and think, give yourself a bit of thinking time and work out a plan of what pensions you've got.
01:34 - A lot of people have got little bits of pension all in different places. How is that going to last for your lifetime? Are you going to spend it? Is it going to be an income? Is it going to be passed on to the children? How is that pension fund going to be used for you across the next 5, 10, 15, 20, 35 years? When you've got that plan then think again about how you are going to spend it and what’s the most efficient way of using that money?
01:55 - Don't rush into anything. Don't be taken about by people ringing you up and offering you free services there will be a lot of scammers around on this I think.
02:02 - Russ Mould
Very unscrupulous operators out there.
02:05 - Mike Morrison
02:07 - Russ Mould
Your message there is that if it's too good to be true.
02:08 - Mike Morrison
If it looks too good to be true, it will be too good to be true. Please take a step back and any investment opportunity look carefully at it. The key thing for me is leave your money in your pension fund while you’re making your decisions. It’s in a tax efficient environment. It’s pretty safe, it’s not going to disappear anywhere so make your decisions carefully, consider what you are doing and then make your decision.
02:29 - Russ Mould
So rather than taking out a big lump sum, park it in the bank suddenly get a poor return on the cash and get clobbered by the tax man. Is that what your saying could happen?
02:36 - Mike Morrison
Exactly there's a lot of talk at the moment about people taking money out of their pension fund and investing it in buy to let, and while that may not be a bad investment opportunity make sure you understand all the tax implications.
02:47 - Russ Mould
And the risks of what could go wrong.
02:48 - Mike Morrison
The risks. If you need an income stream how are you going to cope with not having a tenant in that house for a while. There's pros and cons to all of this and I'm happier if people take a few extra weeks, take a few extra months, just step back and make sure you do it properly.
02:59 - Russ Mould
So when it comes to the new pensions freedom you've made it clear that this isn't a one size fits all solution and what’s going to be right for some won't be right for another and so it's all down to everyone’s personal financial circumstances.
03:09 - Mike Morrison
Very much, I mean imagine if you have a pension fund of £50,000 or £60,000. There's no point in perhaps looking at that or earmarking that as income for the future, perhaps that might be a good way to spend that pay off some debt, buy something you've always wanted, update the house, build that conservatory or whatever. That’s a one off spend. What is the utility you get from that money? That’s different for someone who has got several hundred thousand pounds and may have a family they need to look after and bring up through university, through school.
03:35 - Russ Mould
School fees or whatever.
03:36 - Mike Morrison
And that’s different to the person who has half a million pounds in excess who can enjoy some real tax planning so I think there's no one stop shop, no one size fits all.
Make sure your plan fits what you need to do and the circumstances you've got.
03:49 - Russ Mould
So what’s the ultimate goal with a pension pot? I know there's the old gag about the perfect pension is the one where the final cheque that you write bounces on the day that you die. I mean is that just an old gag or is there some truth in that?
03:59 - Mike Morrison
I think there is some truth but I would argue that ideally your pension pot is what you want it to be and the thought you put into it, the more thought you put into it, the more consideration you have of age and circumstances, the better satisfaction you will get from that money and really, we could all live to be in our 90s and what are we going to be doing if we are all back on state benefits?
04:21 - Russ Mould
£150 a week flat rate that’s going to be roughly isn't it?
04:24 - Mike Morrison
Exactly, so think about it and think again.
04:28 - Russ Mould
So I guess that £150 a weeks is about seven and a half grand a year and the average UK salary is £24,000 - £25,000 so it's quite a step change in that respect.
04:37 - Mike Morrison
Could you live on the basic state pension?
04:39 - Russ Mould: I guess I'd have a try but if I could avoid it I'd rather not.
No disrespect to what the Government’s offering.
04:41- Mike Morrison
04:43 - Russ Mould
So as a final point we've obviously got some big rule changes on this big day, is there a chance the rules could change again at some stage?
04:51 - Mike Morrison
The difficulty is the rule changes in April, election in…
04:56 - Russ Mould
The 7th of May.
04:58 - Mike Morrison
…May, so there is a danger some of the rules could be changed. At the moment I think there's enough consensus between the parties on most of these rules. A lot of the proof will be in the pudding I guess. The pudding in eating. How many people do rush off and cash their money in straight after April pending a new Government. I think the next 6 months, 8 months to a year there will be a review of the rules and that’s perhaps more fundamental.
05:20 - Russ Mould
OK, thank you very much for your time Mike.
05:24 - Now we appreciate that this is all quite technical and can be a lot to take in. You can therefore find more information on our website, the address of which is shown here. You can also use the Government service Pension Wise. You can ask them for a face to face meeting, help over the phone or log onto the website and again the address is clearly displayed right here.
05:44 - So thank you very much for your time for watching this video and please look out for the others that are dotted around our website on the new pensions freedom.