What are you going to do when you’ve got all that free time on your hands? Whether it’s travelling the world or spending more time with your family – you will most likely need a regular income to fund your retirement.
Retirement planning involves thinking about your plans for the future now – and that means making the most of your assets with the aim of maximising their value to provide you income in retirement.
Although the Government will provide everyone who qualifies with a state pension, most people now agree that it is getting harder, if not impossible, to have a suitable retirement income based purely on a state pension.
Retirement planning is about more than just pensions, although they may play an important part in your personal plans. There are many options available to you depending on your circumstances, both as you accumulate your retirement pot and also at the point of retirement and beyond.
Many people state that they “don’t like pensions”. Often it is not pensions per se that they dislike but more how their pensions have previously been managed.
As various rules and regime changes have happened to pensions, and as people move from one employer to another, it is not unusual to see individuals accumulate a number of similar pension arrangements from different providers. This often makes it difficult to see how your pensions are performing.
By reviewing your existing pension arrangements we can help you understand where you are currently with regards to your retirement plan and where you may get to at your point of retirement.
During a review we will consider the flexibility of your existing arrangements and the associated costs and services you are receiving. We will review your current investment choices and confirm to you how they sit in relation to you current attitude to investment risk.
By taking control of your existing pensions you have a better chance of achieving your retirement goals.
NON PENSION RETIREMENT PLANNING
While pensions undoubtedly play a large part on any retirement plan, the general required outcome is the provision of a continuing income once you have stopped working.
Your ongoing income will not just come from any pension schemes you have but also from other investment and savings vehicles.
Managing and reviewing all of your assets, with an understanding of your long term objectives alongside your other retirement plans, allows you to make the most of all options available to you and to fully understand whether you are on track for the retirement you desire.
Managing and reviewing your assets on a regular basis, in a diligent and organised manner, will highlight any potential shortfalls so you have the time to make the required amendments to your planning.
STARTING TO PLAN FOR RETIREMENT
If you are yet to start to plan for retirement we can work with you to put a suitable plan in place. Whether you are looking to start with regular monthly premiums or have capital lump sums you wish to earmark for your retirement income, we will ensure that all of the relevant options are considered prior to making a personalised recommendation to you.
AT RETIREMENT AND BEYOND
Once you reach retirement you will probably want to change your strategy and start taking an income from your various retirement plans.
Some of the decisions you take, specifically with any accumulated pension monies, may be choices you can make only once and that you will be unable to change if you subsequently decide a different option would be more suitable.
Due to the new ‘pension freedoms’ in force from 6th April 2015, the choices available to you are more complex than they have been previously and, therefore, the need for professional advice has increased.
While the ability to take your pension savings as a large lump sum from age 55 may appear appealing, the immediate and long term impacts on your finances need to be considered in depth before proceeding.
Please remember just because you can, doesn’t mean you should.
By working with you as you approach your chosen retirement date we can review your personal situation, explain the various options available to you and ensure that you make the right decision.
The main options to provide retirement incomes via conventional pensions are now best summarised as follows:
TAX FREE CASH
Regardless of any methods you use to provide an income with your accumulated pension funds, you should be able to take up to 25% of these funds as a tax-free lump sum from the age of 55. Occasionally, if you have certain older pension benefits, you may be able to take more.
Whether you take the full amount at outset or over a period of time is a further consideration that should be part of your retirement income plan.
Simply put, in return for a lump sum, i.e. the money you have saved in your pension pot, an annuity provider will give you an annual income for the rest of your life.
However, there are many different options available to you when you purchase an annuity. These include the provision of a spouse’s benefit, where an income would continue to your spouse should you predecease them, or using your state of health to access a better annuity rate.
Currently, a key point regarding an annuity is that once you have purchased an annuity you cannot change the terms you have selected. While this may change in the future, should you be able to unwind an annuity purchase, the terms of such a transaction should be carefully considered.
If a guaranteed income is appropriate to your needs, we will clearly explain the different options available and help you to select the right option for you.
It is possible to leave your pension funds invested and access them, without restriction, as and when you require further funds. This is essentially through what is known as ‘flexi access drawdown’.
Unlike an annuity, which provides a guaranteed income, leaving funds invested in this manner leaves your funds exposed to investment risk. While this may work in your favour over time, serious considerations need to be made with regards to the level of risk taken, the investment strategy employed and the risk that you may outlive your pension funds.
Where you have not done so previously, 25% of any lump sums taken from your pension should be tax free, with any surplus added to your other income with a liability to income tax at your highest marginal rate. If you have already received your full 25% tax free amount then the whole withdrawal will be liable to income tax (subject to your personal situation).
In many cases, depending on your personal requirements, the most suitable route for your personal situation may not be a simple binary choice between one option and another. It is possible, at it may be suitable for a great number of people, to combine the options available. This would allow you to tailor your retirement income solution to your personal circumstances.