UK Pension Freedoms Explained for 2020

A summary of a recent article from FT Adviser

1. What’s Happening? Next year, almost one million people will turn 55, the age at which they can access their pensions under certain rules. This number will peak in 2020 and reach 9.2 million people over the next decade.

2. Pension Freedom Rules Under these rules, once someone turns 55, they can access their pension savings without buying a product called an annuity. They can take out the money as a regular income (called drawdown) or a cash amount.

3. A Growing Trend Since 2015, when the pension freedom rules were introduced, more than £28 billion has been taken out, with each person withdrawing money about six times on average.

4. Recent Increase In the last quarter, there’s been a 21% increase in the amount withdrawn, totalling £2.75 billion, compared to £2.27 billion last year. More people are accessing their pensions, withdrawing an average of £8,200.

5. Experts’ Opinions Alistair McQueen, a specialist in savings, anticipates a boom in the popularity of pension freedoms. However, Anne Willmot, an age campaign director, warns of the need for more jobs for older workers, due to people living longer and needing to supplement their pensions.

6. Implications for Workplaces This increase in older workers will have broad impacts on society, politics, and businesses. Companies are encouraged to be transparent about employing older individuals to adapt to the changing demographics.

Understanding the Terms:

  • Pension Freedom Rules: The ability for those over 55 to access their pension funds without having to buy an annuity, which is a financial product that pays a regular income.
  • Annuity: A product that you buy with your pension pot that guarantees a regular income for life or a set period.
  • Drawdown: A way of taking money out of your pension to live on while still keeping the rest invested.
  • £28 billion: The total amount that has been withdrawn from pension pots since the introduction of the rules.

What Does This Mean for You?

If you’re nearing 55, you’ll have more options for accessing your pension. This could provide more financial flexibility, but also requires careful planning. The increased demand for jobs among older workers might lead to changes in the workplace environment. The situation also raises questions about how the pension system will adapt to the growing and aging population in the future.