How to plan ahead for your retirement?
You can access your pension from age 55 but the earlier you take it the greater the risk that you could run out of money. Knowing how much is enough is the key to successful retirement planning. This is not only about the age you can retire, but also how much you will need to accumulate. And that depends on what you think you will need for a satisfactory lifestyle and what other income sources, such as state pension(s) will be worth.
We can help you visualise your retirement and work out what is a realistic age for taking your benefits and, of course, whether you need to top these up in the meantime and, if so, by how much.
There are four main options (or combination of options) to consider when taking pension benefits for the first time:
- Flexi access drawdown
- A conventional lifetime annuity
- Annuity drawdown
- Uncrystallised Funds Pension Lump Sums (UFPLS)
Before we look at these four options in detail, you will probably be aware when you access your pension fund, you can normally take up to 25% as a tax-free lump sum. This looks highly attractive but it is not always the best decision to take this entire sum immediately.
Taking cash to repay debt would be a good reason for drawing on your tax-free cash entitlement. But otherwise it may be better to take your tax free cash out in instalments over a period of years rather than removing the capital all at once. This will enable you to take greater advantage of the tax free status of investments held in a pension fund.
Taking specialist advice will make sure you select the best retirement option for your needs and circumstances.
Funding Your Retirement
The more you contribute the better a retirement you will have. But also, you will save Income Tax. The maximum amount you can invest and get tax relief is called the Annual Allowance.
The annual allowance is currently £40,000 a year. However, if you trigger one of the events listed below, you will only be entitled to the ‘money purchase annual allowance’ which has been set at £10,000, as the amount you can pay into a money purchase pension and still receive tax relief.
- An income payment from flexi-access drawdown
- A payment of an UFPLS
- Payment under a flexible annuity contract
- Payment from a scheme pension
Please note, it is possible to take your tax free cash entitlement only from a flexi-access drawdown plan and still retain the full £40,000 annual allowance, as long as you don’t draw an income.
You can also take your annuity income (from most annuities) and retain the £40,000 annual allowance.
We can help you to select the correct retirement income solution
As we’re all living longer, choosing the right retirement income solution for your needs has never been so important. Finding the right solution for you will depend on an understanding of your personal circumstances and objectives and how the variety of available retirement income solutions can be used to meet your needs.
When selecting your retirement income solution, it’s important to shop around for the best deal. You are not obliged to stay with your existing pension provider and many retirees find better deals, and more money in their pocket, by searching elsewhere.
We strongly encourage you to try our ‘Annuity or Not’ tool on our website. This will give you an indication of the best retirement income solution for your circumstances and help you better understand the factors at play.
Most people wait until they stop work to take pension benefits but you can access your pension fund at any time from age 55 (rising to 57 in 2028). You don’t have to take the money when you stop working. You can leave it invested if you have other income – perhaps because you will still be working part time.
Contact us today for a retirement review and plan.