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Pension uncertainty turns spotlight on capital drawdown – Key Later Life Finance

The firm urged savers and advisers to embrace the broader philosophy of capital drawdown, focusing on all assets and particularly property wealth. 

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According to Key Later Life Finance, uncertainty over pension taxation rules highlights a growing need to shift retirement planning to include wider considerations of capital drawdown.

The equity release firm said people planning for retirement must reevaluate the role of all capital, including property wealth, as speculation builds about potential changes to pensions in the Autumn Budget.

Budget rumours have pointed to possible future restrictions on taking tax-free lump sums of up to 25% from pensions to a possible limit of £100,000, and even changes to tax relief on contributions.

The firm said any restriction on tax-free lump sums would drive changes in retirement planning, and urged savers and advisers to look beyond pension drawdown to embrace the broader philosophy of capital drawdown, focusing on all assets and particularly property wealth. 

Key pushed for the value of residential property owned by people being considered as part of guidance services such as Pension Wise.

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Financial Conduct Authority (FCA) retirement income data for 2023/24 showed a 20% rise in the number of pension plans accessed for the first time to 885,455 from 739,652, but data showed that around a third did not take advice.

UK Finance data showed that 60% of new mortgage borrowing extends beyond the borrowers’ 65th birthday. 

Will Hale, CEO at Key, said: “Speculation about restrictions on tax-free cash is strong and changes look likely.

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“Equity release is already for many the only viable option for paying off a mortgage or helping family with financial gifts.

“Rising numbers of over-55s are taking tax-free cash and many are doing so without advice underlining how important it is in helping over-55s to address a range of financial issues and how important it is that people get advice.

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“Any restrictions on tax-free cash will shift the balance to property wealth and the equity release market.

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“Advisers and clients should be looking at all capital when planning for retirement and making full use of property wealth as part of that process.”

In addition to calling for its inclusion within Pension Wise, Key called for the value of residential property to be considered by workplace retirement planning propositions and by wealth managers and independent financial advisers (IFAs).

Key asked for an acknowledgement from the FCA that the expectation that most customers would have repaid mortgages by retirement, is not viable in today’s economic climate. 

Key also stated that advice and guidance propositions across retirement planning sectors need to catch-up to ensure all product options for customers are considered, as is required under Consumer Duty in order to deliver good outcomes. 

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