How to access your pension
The 6th of April 2015 saw the most radical changes to private pensions for a generation. Whether you have a personal or a stakeholder pension, this new ‘pensions freedom’ gives you much greater flexibility over what you can do with your pension pot at retirement, including being able to choose how to take your income during your retirement, and can have significant tax implications.
Starting From Age 55
*All figures quoted related to 2017/18 and may change in subsequent years. Tax reliefs referred to are those currently applying (April 2018) and are liable to change. How these changes affect you will depend on your personal circumstances. The changes do not apply to ‘final salary’ pension schemes (also known as ‘defined benefits’ schemes) or to the basic or additional state pensions.
If You’re Over 75
If you are aged 75 or over, your situation remains unchanged by the legislation until death. The changes effected at that stage are illustrated in the dark blue boxes above.
WHAT TO CONSIDER
When deciding which retirement income option might be best suited to your needs, there are several key considerations to take into account:
WHAT OTHER INCOME STREAMS DO YOU HAVE?
- Secure income
- Flexible income
- Other income
- State pension, defined benefit (‘final salary’) pension, annuity
- Not guaranteed to last your whole retirement – e.g. paid work, rental income, savings and investments
- e.g. from ‘downsizing’ your home, selling assets
HOW MUCH ARE YOU GOING TO NEED?
Understanding your household budget at retirement is absolutely crucial. This will depend on whether you decide to pay off any outstanding debts, including your mortgage, credit cards and personal loans. Use our Income and Expenditure planner to help you with this. Click here for our Expenditure Planner
HOW MUCH TAX WILL YOU PAY?
This absolutely depends on when, and how, you take your cash from your pension pot. Careful planning is required to make sure you don’t pay more tax than you
HOW LONG DOES IT NEED TO LAST?
You need to make sure you have a secure income which lasts through your whole retirement – and that could be at least 30 years!
You may want to make provision for later years, so that if your health worsens, you can afford the cost of additional care.
WHAT ABOUT INFLATION?
To maintain your standard of living, your retirement income needs to keep up with inflation. Income from a lifetime annuity will change with inflation each year.
HOW MUCH RISK ARE YOU PREPARED TO TAKE?
If you decide to leave some or all of your pension pot invested, you need a clear view of how much risk you wish to take. The value of your investments can fall as well as rise, and the amount of that change in value will depend on your attitude to risk.
DO YOU WANT TO LEAVE ANYTHING?
Do you want the flexibility to ensure your dependants inherit anything left in your pension pot after your death? This may mean you taking a lower income during your retirement.
Deciding how and when to access your pension has always been a major milestone decision, and we understand that the choices now available to you may make this already daunting decision seem complicated or overwhelming.
The government has established the Pension Wise guidance service www.pensionwise.gov.uk. Ros Altmann, Pensions Minister and a government adviser for older workers suggests that, “most people would probably benefit from paying for expert independent advice as well.”
Pension savers need to be alert to opportunists looking to cheat people out of their life savings. The Financial Conduct Authority (FCA) has relaunched its ScamSmart campaign, urging consumers to hang up the phone if they are cold-called, check to see if any investment offered is on the FCA’s warning list and seek impartial advice. (scamsmart.fca.org.uk/warninglist)
Please call or email us to progress to the next stage. This will allow us to:
YOUR PENSION POT
Gain an understanding of the value of your pension pot, and begin the process of informed decision-making to ensure you make the choices which are best suited to your needs.
Help you make sure that you are aware of the consequence of taking out money, so you don’t fall into a tax trap.
Discuss your specific needs in your retirement, compare the different options available to you and guide you as you take your first steps along your retirement journey.
Partner with you to help you fully understand your options and work out which retirement option is best for you.
Wherever you are along your journey to retirement, these changes offer a real and exciting opportunity for you to shape your financial future, and we look forward to helping you explore the next steps for you.