Planning ahead for retirement is one of the most important aspects of financial planning and we aim to help you get it right. There are various options for this and we will help you explore them all.
Crucially, you need to set a target income that you will need when you retire, then save an appropriate amount and ensure that the money is invested sensibly. You need to keep track of how your money is growing and we can help you with all of this.
Also, when you come to retire, you need to consider ALL of the different options on how best to employ your pot of money. An interesting website to check for general information on the options available is www.pension-incomeoptions.co.uk. (By clicking this link you are now leaving the regulated site of Astute Money Management Ltd. Neither Astute Money Management Ltd, nor Sesame Ltd, is responsible for the accuracy of the information contained within the linked site.)
Essentially, you can opt for a flexible option, a guaranteed (inflexible option), or a mixture of the two. We can help you explore which is best for you, then help you choose the right solution. Where applicable, we can monitor ongoing progress to manage any risk involved.
We can help you analyse ALL the different provisions you have; employer pensions, personal pensions, state pension, business interests and other investments or income.
We can explore whether phased retirement is a good option, especially where you have a potentially high tax bill.
There are different types of Pension Income Drawdown, including:
After April 2015 new arrangements are unlikely to exist because the cap was previously set by legislation, which has since been changed. However, for some people with existing capped drawdown arrangements, it makes sense to keep the old limits in place.
The Pensions Regulator said eight in ten smaller medium and small employers have consulted an adviser to help them comply with their duties but despite this there are “gaps in knowledge”, in particular among accountants and bookkeepers who “continue to have the lowest level of understanding of all intermediaries about automatic enrolment.”
Flexible Drawdown is a way of accessing your pension savings. It allows you to draw out as much as you like. You can even take the whole lot as a lump sum, if you wish.
The first 25% of the pension fund is usually tax-free, and the rest is taxed as income, at your highest marginal rate.
Income Drawdown is potentially suitable option for those with significant pension funds, or additional sources of income. Pension Drawdown can facilitate a much higher income than an annuity and is a flexible pension option with potentially better death benefits and tax advantages.
Whether the income is sustainable depends on investment returns and personal circumstances and whether this is suitable or not should be considered with professional financial advice from a pension’s adviser.
Pension Drawdown plans are also sometimes referred to as Income Drawdown, Income Withdrawal, Pension Withdrawal or Pension Release.
Since 6 April 2006 the official name for this type of plan is Unsecured Pension (USP) and it allows you to take benefits from your pension funds, from age 55 onwards, without immediately buying an annuity.
Taking the benefits from your pension before the normal retirement age of 60 or 65, is sometimes referred to as “unlocking your tax free cash”. Some people want to unlock their tax free cash early to use the funds to clear debts or repay a mortgage and the present rules allow you to do this from age 55.
You do not have to stop work in order to take your benefits. You must bear in mind though, that by taking the tax-free cash (and any income) early you are reducing the funds available for when you retire.
Some retirees use income drawdown as a temporary top up to their part time income, or other pensions until the state pension starts. Because it is flexible, you can take a high income in the early years, then reduce the income at a later date to reduce the risk of running out of pension funds in retirement.
From the time of taking benefits (known as crystallizing your fund) until you reach 75, you can use Pension Drawdown to take both tax-free cash and an income. The fund remaining after taking tax-free cash is still invested as a pension fund, continuing to benefit from a tax efficient environment in the same way that it did prior to taking any benefits.
Once you reach age 75 you lose your entitlement to tax free cash lump sum. The death benefits also change, so you should seek advice and put in place a well considered plan on how to best utilise your pension savings and other assets and income.
If you take a flexible income, this could limit your ability to accrue further pension benefits (or make further pension contributions), so if you are continuing to work and want to contribute to a pension (especially a generous employer’s scheme), then you must be very careful how you take your pension income.
Pension contributions can still be tax efficient for surplus income, even if you are retired!
An annuity is a lifetime contract and generally cannot be changed once started.
For example if annuity rates increase you cannot get a better deal. If you are close to the age 70 or more then annuity rates are likely to be favourable for most people. However a person in their mid 50’s or early 60’s may not benefit from a contract that cannot be changed for the rest of their lives.
However if you have a small pension pot and no other means to support yourself an annuity is likely to be most suitable because taking higher risks may not be tolerable.
Income drawdown offers younger clients in particular more options in retirement and the chance to see their money grow even after they have retired. As long as you understand the risk versus the reward and have a large enough pension plan to absorb costs etc. then these are potentially a viable option.
This is similar to Flexible Drawdown, but has differences in the way the funds are paid and the implications for your financial planning.
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Astute Money Management Ltd is an appointed representative of Sesame Limited which is authorised and regulated by the Financial Conduct Authority.
Sesame is entered on the Financial Services Register under reference 150427. The FCA does not regulate trusts and some forms of tax planning. Astute Money Management Ltd is registered in England & Wales (registration number 04206845) at address: 12 Meyrick Park Crescent, Bournemouth, BH3 7AQ