Pensions form a big part of financial planning as the tax relief on contributions is a big advantage for long term savers who are saving to fund for their retirement.
We help our clients understand the tax position, contribution limits and options available in retirement when saving for and accessing benefits in retirement.
If you already have a pension we can help you work out if it is better to leave it where it is or move it to a new product which may be more suitable for your needs. In particular we have experts dealing with the analysis of final salary pension schemes who are able advise on the benefits of the scheme and the schemes ability to meet your retirement goals compared to alternatives.
Final Salary Pension Analysis
If you have a final salary pension scheme (defined benefits pension) you may wish to review this to see how suitable it is to meet your retirement objectives before choosing to take benefits.
In many cases you are able move out of the scheme thus giving up your benefits in return for a one off transfer amount. You can transfer the one off amount to a suitable defined contribution scheme and manage the money yourself going forward.
There are many reasons you may wish to do this as well as many reasons you should not. If a guaranteed income in retirement is important to you and you do not like the idea of investment risk and managing your money then it is unlikely that this will be a suitable solution for you.
However, if you are comfortable with the possibility of fluctuating income and can accept investment risk a transfer to a defined contribution scheme may help you to chose a different shape of retirement income, pass on your pension wealth to nominated beneficiaries other than a spouse in the event of death or take part of your benefits such as tax free cash without the need for a regular income.
Before making any financial decision such as how to take your retirement benefits it is important to understand all your options, benefits risks and disadvantages and seek advice from a professional on the best outcomes for you. If you wish to transfer a defined benefit scheme with a transfer value in excess of £30,000 you must seek and evidence you have received financial advice prior to signing the transfer papers.
If you have not looked at the options available to you in retirement for your pension savings you may be pleasantly surprised. You do not have to buy an annuity in retirement now and therefore can maintain full control of your accumulated pension. By maintaining control you are also able to drawdown payments or an income as and when you require them or if not required you can leave your pension to accumulate free of tax (subject to the lifetime allowance at the age of 75).
The most important questions in retirement are to understand how you want to retire and what goals and ambitions you would like to achieve. Our advisers will talk to you about these but it is a good idea to ask yourself the questions below that are relevant to you.
What does retirement mean to you?
- Do you want to stop working altogether, keep working as long as possible, or gradually reduce your working hours?
- Do you have a specific age in mind?
- Will you want to sell any assets, such as a business or a property?
How do you want to live in retirement?
- Are there any once in a lifetime dreams you want to fulfil?
- Have you any plans to move abroad, or purchase a second property?
- Do you anticipate living in your current house or downsizing?
- When will you need to generate retirement income and how much?
- Will you need your income monthly, quarterly or annually? Does it have to be paid on the same day?
How much risk can you afford to take with your income?
- Do you need to pay specific bills or regular payments out of this income?
- Does it matter if some or all of your income fluctuates, and goes up or down? How much?
- If this income was not paid out how long could you last from other sources? What other income sources or assets do you have available?
- How important is certainty of income, is there a minimum you need to meet?
How much risk do you feel comfortable with?
- Would you rather take some risk with this income to see if you can get more even if this means it may go down and you could lose it altogether
- Is it important for you to retain flexibility accepting this comes with some additional risk, or would you prefer to make an irreversible decision in return for greater certainty of income?
- Are you more concerned about the risk of inflation eroding the relative value of your money, or investment fluctuations eroding the absolute value of it?
- Are you comfortable with retaining an ongoing involvement in managing your retirement income, albeit with professional help, or would you rather make a decision and then forget about it?
Preparing for the worst
- How healthy are you? Do you have any illnesses or any concerns about how long you might live, or require income for? (See How long will my pension need to last)
- Do you have any future financial obligations to meet, such as debts?
- Do you have dependants, such as family, who would be reliant on your income when you die? When if at all, would this dependency end?
- Do you wish to leave an inheritance?
- Should you need specialist care in later life, do you have any views on what type of care you would prefer?
Whilst thinking about these questions and your forthcoming retirement, there are also a number of factors that you should consider carefully. The decision you make now in respect of your retirement could be irreversible so please take the time to consider the factors below. Our advisers will help highlight risks that are relevant to your ultimate decision regarding retirement.
- Your state of health
- Whether your pension savings offer any form of guarantee
- The ongoing needs of your partner and/or dependants
- The effect of inflation
- Whether you have considered all the options available to you
- Whether you will have a sustainable income in retirement
- What the tax implications are
- Whether you understand the charges involved
- The impact on any means tested benefits
- Do you have debt – how will taking your pension affect this?
- Are you aware of pension and investment scams and what they look like?
We have produced a guide to your retirement options which you can download here. It is worth having a read of this to help understand all the variables you can consider for your retirement. However with answers to the above questions and further detail about your financial situation our advisers are well placed to talk to you about these options and why they might be suitable for you whilst discounting options that are less suitable in terms of meeting your retirement objectives.
How long will my pension need to last?
Many people often underestimate how long their pension will need to last. They base this on their parents or grandparents history of mortality and don’t have a good indication of their own mortality.
It is important to understand the likelihood of reaching a certain age so we can reasonably plan for how long your retirement income will need to last.
Please use the calculator below to estimate your life expectancy. Is it higher or lower than you expected?
Pension Review and Consolidation
Why Should I Review My Pension?
By saving into a pension you’ve taken an important step towards a more comfortable retirement – and taken advantage of significant tax breaks that could help you enjoy the quality of life you deserve in the future.
- When did you last take a look at your pension?
- Can you be sure your pension is on course to provide the retirement you deserve?
- Are your payments invested in the fund(s) that meet your investment needs and views?
The fact is, if you want your pension to support you as you expect in later life, you need to keep a keen eye on it now and give it a boost if necessary. That could mean topping up the amount you’re paying in, or simply checking that you’re happy with the choice of funds in which your money is being invested.
Many employer run defined contribution pensions will select a default fund for contributions. Popular funds often started de-risking your investment as you approached retirement in preparation to purchase an annuity. Many clients do not now wish to purchase an annuity therefore this type of life styling fund may mean you are missing out on potential growth opportunities as you approach retirement. What was once suitable may now not be suitable as you may wish a different shape for income in retirement.
If you have collected various pensions throughout your life you may wish to consider consolidating them to assist in their ongoing management. Some of the benefits of consolidation are;
- Migrating to newer style plans which have access to features which will aid your retirement such as flexible drawdown.
- Consistent investment approach
- Discounts in administration fees
- Less paperwork
Our services will review each pension and provide analysis of features, charges and investments in comparison with a new consolidated approach.
Should you require assistance in reviewing your pension requirements one of our consultants will be happy to assist you. Please complete our independent pension advice enquiry form.
If you are approaching retirement and require help and guidance on what to do with your accumulated pension now is the time to speak to a professional pension adviser. You may have more options for drawing your pension than you think, some more suitable for your current circumstances than others. See here for a brief outline of the pension options available in our guide to retirement options or better still speak to one of our pension specialists today.