The pension freedoms that came into force last week are not only expected to impact the individual financial situation of people but also would impact the general economy and the property market as well.
With the reforms still in early stage, property experts from estate agency Chestertons are explaining what the changes involve and comment on possible effects on the property market in recently-released video.
There are around 18.4 million people currently aged 55+ in the UK and from 6th April, those with ‘defined contribution’ schemes (DC pension pots) have access to an estimated £67.5 billion.
To illustrate how the new pension rules work Chestertons give the following example:
Someone with a £400,000 pension pot would be able to take £100,000 (25 per cent) as a tax-free lump sum, and would then have the following options with the remaining 75 per cent:
1. Withdraw it immediately and pay income tax at the appropriate rate (based on total income – i.e. pension income plus any other income)
2. Buy a £300,000 annuity (which currently could provide an annual income of anything between around £7,000 and £21,000, depending on the age of the applicant and level
of cover)
3. Buy an annuity with part of the cash, leave the rest invested or withdraw it and spend it
4. Keep the £300,000 invested with the pension fund and draw as much or as little income as they wish
