PENSION FREEDOMS – ten years on

Boys & Maughan strengthens its leadership team

It is now a decade since George Osborne introduced legislation under the title of Pension “Freedom and Choice”. The rules, which were introduced in April 2015, gave people aged 55 and over more flexibility about when and how they draw their Defined Contribution pension savings.

Increased popularity

Flexi-Access Drawdown has rapidly become the most popular method of drawing a pension income. Under a Flexi-Access Drawdown approach, the pension holder has complete freedom to draw as much or as little from their pension pot beyond the normal pension age (currently 55) without restriction.

According to data compiled by the Financial Conduct Authority (FCA) in the 2023/24 tax year, 68% of those with pension funds valued between £100,000 and £250,000, who accessed their pension, did so via Flexi-Access Drawdown. Only 19% chose to purchase an annuity, where a guaranteed income for life is bought with the pension fund value. For those with pension values above £250,000, the popularity of Flexi-Access Drawdown is even higher, with 82% of individuals accessing their pensions using this approach.

It is easy to understand why Flexi-Access Drawdown has become such a popular option for those with more substantial pension savings. Adopting a drawdown approach provides the ability to adjust the amount of income drawn to a level that precisely suits the individual and can easily be adjusted to adapt to changes in financial circumstances. For example, the level of drawdown can be increased if additional income is required or reduced if income is not needed.

Furthermore, the income stream can be established as monthly payments, or ad hoc lump sums of income can be paid in addition to, or instead, of regular payments.

This means that Flexi-Access Drawdown can also be a powerful way of reducing an income tax liability, by adjusting the level of income withdrawn. This is proving particularly useful as Income Tax bands and the Personal Allowance have been frozen since 2021, and the State Pension is increased each year via the “triple lock”.

By adopting a Flexi-Access Drawdown approach, the fund remains invested, providing the opportunity to participate in growth in values over time. As a pension fund remains tax exempt when invested, it allows the accumulated savings to grow in a tax-efficient environment.

A key benefit of Flexi-Access Drawdown is that any remaining pension value held can be passed on to a nominated beneficiary when an individual dies. This contrasts with other options, such as pension annuities, where payments cease on the death of the individual, or their dependent. It is, however, worth remembering that pension death benefit rules are set to change from 2027, when the remaining value of a defined contribution pension will be added to an individual’s estate when Inheritance Tax is calculated.

Not without risks

Whilst it is easy to identify the reasons for the increased popularity of drawdown pensions, it is important to recognise that this approach carries ongoing risks. The most obvious is the potential for the withdrawals to erode or even exhaust the value of the pension, at which point the pension would cease to provide you with an income. The success of a drawdown approach will be measured by whether the rate of withdrawals taken is sustainable, and the long-term investment performance achieved.

Selecting an unsustainable rate of withdrawal is likely to reduce the value of the pension over time, if investment returns fail to match the level of withdrawal taken. As the pension value falls, the rate of erosion often accelerates, as the rate of return required to offset withdrawals becomes increasingly unrealistic. This effect can be exacerbated by significant movements in global markets, such as those seen during the early stages of the Covid-19 pandemic or at the start of the Russian invasion of Ukraine. If such a market shock occurs in the early stages of a drawdown strategy, this could further reduce the likelihood that the portfolio can meet the required rate of return to match the rate of withdrawal.

Adopting a drawdown approach will mean that a suitable investment portfolio will need to be constructed, and managed, which will incur ongoing costs. Such costs are not present when buying an annuity, due to the absence of an investment fund. It is also crucial that any drawdown retirement strategy is reviewed regularly, to ensure that it continues to meet any changes in circumstances, and the investments remain appropriate given variances in market conditions.

The power of tailored advice

The increased choice offered under the Pension Freedom rules also increased the complexity of the decision-making process, and this remains as true today as it was ten years ago. This is why it is important to seek advice which is tailored to your specific needs, objectives and financial circumstances.

Whilst Flexi-Access Drawdown is clearly the most popular option amongst many approaching retirement, it isn’t right for everyone. Annuities provide a guaranteed income and avoid the need for the ongoing risk and costs of managing pension investments. They do, however, fail to offer the flexibility that a drawdown approach provides, which many find invaluable.

This year’s Kent Invicta Chamber Patrons have been appointed in a presentation ceremony staged at the latest Kent Business Leaders Dinner. The dinner was hosted by Kerry Barber, Director of Research and Innovation Support, on Thursday 24th April 2025, in the Darwin Conference Suite at the University of Kent, one of this year’s Patrons.

Over 60 guests were welcomed by Tudor Price, Chief Executive at Kent Invicta Chamber, and Kerry Barber, Director of Research and Innovation Support at the University. Guests enjoyed a delightful meal focused on Kent produce, accompanied by wines from Biddenden Vineyards.

Before dinner, the Patrons for the 2025-26 term were announced. They were presented with prestigious certificates designed and produced by local businesses Oak Creative and Frameworx. Patrons represent key sectors in the county and organisations that support and service the local business community.

Tudor Price, Chief Executive at Kent Invicta Chamber, said, “I would like to thank all our Patrons for their commitment to the Chamber for the coming year.”

After dinner, Sarah Howard MBE, Chair of the British Chambers of Commerce, outlined the work that she and her team were conducting to amplify the key issues being raised by Members both locally and nationally, ensuring that policymakers, current and future, keep business and the economy foremost in their minds. Sarah highlighted the key policies being put forward to the government under the “where business belongs” campaign, which lays out in clear terms the steps needed to boost the UK economy.

The Kent Invicta Chamber Patrons for 2025/26 are Brachers LLP, Diamond Search Recruitment Ltd, Eurotunnel –A Getlink Company, Flowbird Ltd, MHA Baker Tilly, MidKent College, Nova IT Solutions, Stagecoach South East, Towergate Insurance Brokers, and the University of Kent.

Photography by Matthew Walker

Due to the emotions involved in a separation, it is unsurprising that so many divorces result in conflict.

At ThomasHaywood we recognise the negative impact that conflict has on the health of the parties and their children.

The ThomasHaywood One Couple - One Solicitor process allows us to see couples together and to advise you jointly, providing legal advice to help you to resolve financial matters or arrangements for your children.

If you would like to discuss this further, please contact: Sarah Haywood on 01892 765013, sarah@thomashaywoodsolicitors.com or Juliet Franklin on 01892 765017, juliet@thomashaywoodsolicitors.com

Time to consider a more e ective website?

Whether your website needs a service or a complete overhaul, any investment in building your online presence into a robust and powerful engine for business growth is worthy of every consideration...