Retirement Income Planning
If you are nearing retirement, you are likely to benefit from speaking to a financial planner to check your current pension provisions and discuss the options available when you reach retirement age. At this exciting time, we ask our clients to complete our Retirement Pack which will focus your thoughts on expenditure needs, priorities in retirement such as the type of income needed, whether provision should be made for dependents and death benefits for generational planning.
We take an holistic approach when advising on retirement income and focus on the most tax efficient way of achieving your target income from all of your savings and investments. There is so much flexibility available now with pension schemes, that it may be possible to save considerable amounts of tax by structuring withdrawals carefully. It is a comprehensive service but will set your retirement strategy which can be reviewed each year and can be adjusted as your circumstances change.
There are four main strategies to consider at retirement with regards to your pension schemes:
1. Tax Free Lump Sum
Pension savers are usually able to take a tax free lump sum of up to 25% of the pension value when commencing benefits. Whether or not to take this option will depend on the type of pension you have and your personal situation and there are various methods of using this facility to keep future income tax bills lower.
2. Annuities (Secured Pensions)
Annuities provide a guaranteed income, either for a fixed term or for life. They are purchased with a lump sum usually saved via a pension plan. There are many options to choose from when selecting your annuity and there is usually no option to amend the plan once in place. The options can include increasing income, capital protection, long guaranteed payment periods up to 30 years and building in spouse’s pensions. Advice is therefore extremely important when making the decision to purchase an annuity as decisions made at outset could significantly affect the income received for the rest of your life but will provide peace of mind and valuable guarantees.
3. Flexi Access Drawdown (Unsecured pension)
This option gives less security, however provides greater flexibility and the potential for continued growth of investment funds. It allows for a broad range of planning opportunities including how and when to draw down from the pension, the death benefits that can be left to the spouse or relatives, inheritance tax planning and it will be possible to purchase an annuity at a later date if that is suitable.
Drawdown schemes will involve investments and therefore careful consideration is needed as to a suitable investment strategy. In view of the complexity, regular reviews and ongoing costs can make it inefficient for smaller pension plans. However, the benefits include the ability to maintain control of the pension investments, flexibility of the level of income, ability to defer the purchase of an annuity and potentially greater death benefits.
4. Combination Strategies
With so many options and so much flexibility available now following the Pension Freedom rules that were introduced in April 2015, we are able to construct very bespoke retirement income plans which combine some or all of the above. The plan will take into account detailed information we collect about your circumstances, needs and objectives. Importantly, the plan will be reviewed every year to ensure it remains suitable and any adjustments dealt with so that it continues to meet your needs.