Should I delay retiring because of the Budget?

Pension freedom launches in 2015. But what should you do if you retire before then? Simon Read finds out

George Osborne's big Budget announcement that he is relaxing the pension rules that force people to buy an annuity has left anyone planning to retire before April 2015 with a problem.

Should they continue with their existing plans and buy an annuity? Or should they rethink their approach and wait to take advantage of the new pension freedom next year?

The question was posed by Independent reader Phil Green of Bridgend, a former army officer who has built up a £100,000 pension pot.

"It would seem that I'm in the unfortunate position of being in the wrong place at the wrong time," he wrote. "I had been hoping to retire in August this year, but the advice currently appears to be to wait until next year.

"I had intended to take my 25 per cent tax free lump sum and re-invest it until my wife retires in three years or so. I had planned to commute the balance into an annuity, adding the monthly income to my existing small army pension plus the state pension.

"But the advice now seems to be to wait until 2015. That would mean having to get by on my army pension and the state pension for another year, which I'm not sure I can do."

We put Mr Green's quandary to a team of experts. "This is typical of the problem facing real people, rather than the theoretical ones shown in 'case studies' in the consultation document issued by the Government," said David Trenner, technical director at Intelligent Pensions.

"Just because the rules are changing in April 2015 does not mean that people are all left in limbo. I think that buying an annuity now may not be such a terrible thing – rates might fall if fewer people are buying annuities – but I can understand people wanting to wait in case they are magically improved. However for Mr Green, drawdown looks an obvious solution."

Tom McPhail, pensions expert at Hargreaves Lansdown also mentioned drawdown – which effectively allows you to take an income from your pension fund without having to buy an annuity. "Mr Green could take his tax-free lump sum this year and use the current income drawdown rules to take an income from his fund. He would then have the option of the more generous drawdown rules at a later date."

However he pointed out that following that route comes with risks. "There are potentially investment losses if drawdown funds fall, for example. The benefit of this approach, though, is that you keep your options open. Next year if Mr Green decided he wanted an annuity after all, then he can still buy one."

But Mr McPhail added that he though annuities can still be the right answer. "Annuities do still have a valuable role to play in delivering certainty to retired investors, both in terms of investment risk and life expectancy risk."

Alan Higham, head of retirement insight at Fidelity, and chairman of Annuity Direct echoed that view. "Annuities have not suddenly become a toxic product to be avoided. They provide certainty of income, albeit without spectacular returns, in nominal terms. Many people will still need that."

Given that Mr Green needs an income from his pension this year, he has several options, Mr Higham continued. "He could crystallise a small part of his pension, say £12,000 of it; take £3,000 as tax-free cash and use that to fund expenditure from August to April.

"Or he could move the whole of his pension into income drawdown and draw whatever income he needs. He can do this himself using a direct-to-customer Sipp."

Nigel Barlow, director at Partnership said the changes announced in the Budget raise interesting questions for those who are thinking of retiring before April 2015.

"Should you continue with your existing plans and perhaps purchase an annuity? Or wait and access the balance of your pot as cash?"

He said that people should consider their individual circumstances and ask themselves some questions. "Do you have sufficient income to wait until April 2015? Or do you need the income now? Do you want to access all the cash immediately and potentially end up paying a fairly hefty tax bill or do you want to find another option?

"Do you want a guaranteed income for life or are you happy that you can manage the money sufficiently well yourself? Do you have a medical condition which might mean you are eligible for an enhanced annuity if you want one?" he asked.

Ultimately, he said, people need to balance their desire to access their pension pots with the goal of living a comfortable retirement, which could last on average 21 years if you are a man or 23 years for a woman.

Mr Trenner had some specific questions for Mr Green. "What are you planning to spend the tax-free cash on? If it is just going to sit in a bank account boosting bankers' bonuses, you probably shouldn't take it yet. Phased drawdown would allow you to take some now and more later."

His next question was about Mr Green's army pension. "Assuming that 'small' means perhaps £5,000 a year, then added to state pension Mr Green will get roughly £1,000 per month, less a little tax." His wife's income is also relevant, as is whether she has her own pension and when she qualifies for a state pension.

"What are Mr Green's outgoings? And are these all relatively fixed, such as rent, or utilities?" Mr Trenner continued.

"With £100,000 saved in a pension, the most important thing is to get some advice. Most people wouldn't buy a house without talking to a surveyor and a lawyer, so why would anyone make their second largest investment and not take advice?"

Mr Barlow agreed. "I would strongly recommend that you consult an independent financial adviser, as they can help you to decide what is best for your individual circumstances," he said.

So with freedom comes responsibility. In this case that means choosing the right path for the best financial future.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea