I have had many cases of pensioners confused about the pension funds and how to plan with them effectively. However, the government had made some provisions to help people manage their funds to see them through their old age. But changes have been made with the new pension freedom, which gives pensioners freedom and unfiltered access to their funds. This recent changes with the pension fund have their advantages, but there is a need to break the new pension freedom and how it works.

To create more clarity and ensure that you take advantage of this new pension freedom, I will explain the vital points associated with the new pension freedom. It would be best to understand the changes and then take advantage of them to use the pension fund properly. If you are a pensioner, I will recommend some ways you can benefit from how the new pension freedom works. In simple terms, this new structure gives you the freedom to do your pension funds the best way you wish. The pension managers no longer control your pension and how much you can take out anytime.

The New Pension Freedom Allows You To Take the Lump Sum

With the new pension freedom, you do not rely on your annuity. Instead, you can collect the lump sum of your pension and spend it the way you wish. With the previous pension law, the government wanted to protect pensioners from spending the lump sum at a go and being left without any funds to cater for themselves. However, the new pension freedom allows you to request for the whole of your pension fund.

Before you take this option, I will advise you to consider what you want to do with the fund. It will be unwise to blow the whole sum on luxury without any plan for catering for yourself in the future, which is the primary purpose of the pension fund. Also, note that you will have to consider leaving something for your family as the previous pension law provided.

But let's consider making a wise investment with the pension fund, which will leave you and your family well-off. If you have a reasonable investment worth taking the risk and good returns, then I will advise you to take the whole sum or a higher percentage of the pension fund and invest. There are several investments such as real estate, shares, stocks and other financial markets to consider, and you will expect reasonable returns.

If you don't have reasonable plans for the money, please continue with your annuity, which is safe for you.

Taking Your Income Through Annuity

For those that want to keep the fund safe, you can still be allowed the option of income through an annuity.

You can withdraw 25% of your pension fund tax-free or leave to yield more income through investment to make it beneficial. There is more freedom with the fund and benefits, such as free tax funds, so you have more for investment or carrying out that project. For those that want to make a down payment on a house or an investment plan, the 25% tax-free allows you to get the required funds to proceed with your project.

I will encourage pensioners to find a profitable project and consider using the 25% to start while still having their income through an annuity. Those who want to take the minimal risk with their pension give you access to a percentage of your pension while still protected with the annuity.

You Can Take Income through Drawdown

With the new pension freedom, there is no cap to the amount of your pension you can withdraw for a period. You will agree that the previous law does not give you this freedom to prevent you and other pensioners from blowing off their pension funds. Although the new pension freedom does not provide such safety, it gives you the freedom to make plans with your pension funds.

Now, with investment opportunities around us, it is an excellent time to let your money grow through investments. However, you should be careful not to run down your pension because of this free access and be left destitute. And for this reason, I will advise pensioners to get a fund manager for the best advice and help manage their money. It is common knowledge that it is difficult for people to manage their pension, especially with the freedom to the entire fund.

Take Lump Sum of Fund

Have you heard of the Uncrystallised Funds Pension Lump Sum (UFPLS) option, which allows you to take a periodic lump sum from your pension fund? There is now no limitation on the number of lump sums you can withdraw from your pension fund and still enjoy the benefits of 25% tax-free. However, there are high marginal fees to be paid for those that are not cash-free, so you have to manage the process to ensure that you do not pay much marginal fee. Although this gives you the freedom and access to your money when you need it, if not properly checked, you may end up losing much of your fund to paying charges.

I am afraid that pensioners will be tempted to spend on luxury with this freedom. And their pension fund may expire before they do, which may put them in a dicey position financially. So unless you need the money, you should use this freedom with caution.

Now, pensioners should understand that the law is not compulsory for all pension managers. So I recommend that you analyse the pension fund manager with the options you will want to access with your pension. You may as well stick with a pension fund that applies to restricting your fund to annuity or inheritance. You may turn your pension fund into a bank account with the freedom to withdraw any amount you want.

But my best advice is to get a financial plan with your pension fund using a reliable pension fund manager. 

© Lifestyle Tips by Antoaneta

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