Retirement planning and pension options

18 Sep Retirement planning and pension options

Retirement planning advice is critical to your long term standard of living.

Changes to UK pension law are giving retirees more freedom on how to provide for their retirement. Pensions are now much more attractive to savers and interesting to retirees!

A flexible retirement will give you more control over your finances so that they can be tailored to your life goals. When you first retire you might want to go on that holiday of a lifetime: cruise the world, go on safari, explore exotic islands or visit family far afield. These are expensive items, which previously may have been a struggle on a fixed income, but new rules give you the flexibility to access more of your pension fund to achieve these dreams.

This flexibility, however, will have to be carefully managed to avoid the risk of eroding your capital which will ultimately lead to a significant fall in longer term income.

Some good news is that if you have a final salary pension (also known as a defined benefit scheme pension) from your employer, you may wish to consider a transfer to a new personal pension to access this greater flexibility. Ideally you would gain access to this greater freedom and choice via the employer scheme, but in most cases this will not be permitted by the trustees who control the scheme and your pension.

If you already have a personal pension or a money purchase (defined contribution) employer’s pension scheme, such as a stakeholder plan, what you must ensure is that you save more into your pension before you retire so that you can start living more when you retire. If required, you can pay into an employer’s pension and your own plan at the same time.

Remember that payments into your pension come with generous tax incentives from the government, which will help your retirement savings increase more significantly. Also, because investment returns within a pension plan are very tax efficient, your fund should grow exponentially over time.

The value of your fund will depend on how much you put in, how much tax rebate the government gives you and how well your investments perform. It is therefore vital that you take advice from a regulated pensions adviser who can not only ensure you have the right pension plan, but will also help you invest in the right areas to match your risk appetite and required rates of return. In addition, a suitably qualified financial adviser will help you keep on track to achieve the fund value you need (subject to what you can afford of course).

When you come to retirement, if you have sought ongoing financial advice you should have a decent pension fund seeing you through retirement, so that you can comfortably achieve your retirement dreams without sacrificing your longer term standard of living or quality of life.

When you reach retirement age, you must choose whether to take a guaranteed fixed income for life, or over a fixed term (such as 3, 5,7 or 10 years), or do you need a much more flexible arrangement and perhaps take a large income in the early years, followed by a lower more sustainable income in the later years.

With the state pension age getting older, perhaps you might want to retire earlier than this and so need a higher income in the early years to bridge the gap. Or, perhaps you will continue working part-time, so need only a low income now, but with the option to increase later.

If you would like advice on what the current pension income restrictions are and how they will change in future, please contact Astute Money Management for expert pensions advice.

Although we are ‘restricted’ advisers, we are independent from any pension provider and will give you impartial advice on how to plan for your future. We will also be able to guide you through the maze of retirement income options, ensuring you get the right type of pension income.

This article has been written by Daniel Weldon, Director of Astute Money Management Ltd (www.astutemm.co.uk), 01202 263856.

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