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The New Year is a great opportunity to take a good look at your finances and make financial plans for the coming year. Individuals who are facing retirement and have a defined contribution (DC) pension will have a number of decisions to make given the freedom and choice in pensions. To help with this, WEALTH at work, a specialist provider of financial education and guidance in the workplace supported by regulated advice for individuals, has created a list of top 10 tips for those who are thinking about retiring in 2019.<\/p>\n
1. List ALL your assets<\/strong> \u2013 Before you make any decisions about your retirement, work out which assets you have and what they are all worth. In addition to your pensions which may include defined benefit (final salary), and defined contribution (money purchase) pensions, you may also have other assets such as ISAs, shares and general savings. All of which should be considered as potential sources of retirement income.<\/p>\n 2. Work out how much you need in retirement<\/strong> \u2013 Think about how much income you are going to need in retirement including essential income to meet your day-to-day living expenses (household bills etc.), and discretionary income for holidays, hobbies etc. You also need to think about how this income requirement may change over time. For example, income needs are widely believed to follow a \u2018u shape\u2019 in retirement with the first phase when you are most \u2018active\u2019 being the most expensive. Spending often falls after a while in what is known as the \u2018passive\u2019 phase, as people become a little less active and perhaps cut back on areas such as travelling. However costs then may go up later in retirement in the \u2018supported\u2019 phase, if extra care and support is required.<\/p>\n 3. Think about how to access your pension income<\/strong> \u2013 If you have a DC pension, you need to decide how to access your income. You can choose between income drawdown, buying an annuity or taking it as a cash lump sum. It doesn\u2019t have to be just one choice as you could even choose a combination of options. Don\u2019t worry if it sounds overwhelming – financial education and\/or regulated financial advice can help you understand exactly what each option means and which approach best suits your needs. Speak to your employer about any support that they provide and visit Pension Wise<\/a>.<\/p>\n 4. Don\u2019t pay unnecessary tax<\/strong> \u2013 Don\u2019t forget, typically only the first 25% of a DC pension is tax free (the calculation for a DB scheme will be different); the remaining 75% is taxed as earned income. You could find yourself paying more tax than you need to if you don\u2019t plan carefully. For example, some people have taken their pension as a cash lump sum, not realising that it could make them a high rate tax payer! It\u2019s worth looking at your options, for example, it may be more tax advantageous to take income from your non-pension savings first. Also, you may be better off taking a smaller amount each year from your pension, and then to top it up with withdrawals from your ISA, as this is paid tax free.<\/p>\n 5. Carefully consider whether you can really afford to<\/strong> retire<\/strong> \u2013 Do you have enough put aside to be able to afford to retire, or do you need to work a little longer, or perhaps part-time? Research has found that most people live longer than they expect they will, so keep this in mind when doing your sums. For example, the Institute for Fiscal Studies\u00a0found this year that those in their 50s and 60s underestimate their chances of survival to age 75 by around 20% and to 85 by around 5% to 10%.<\/p>\n 6. Make sure your pension beneficiary details are up-to-date<\/strong> \u2013 In 2015, the Chancellor abolished tax on death on DC pensions for anyone who dies before the age of 75. This means that any remaining pension can pass onto your beneficiaries\u2019 tax free, subject to not exceeding the current \u00a31,030,000 lifetime allowance, and providing that the company pays out within two years of the date of death.<\/p>\n 7. Shop around <\/strong>\u2013 Make sure that you shop around before you make any decisions about purchasing any retirement products. The FCA\u00a0found this year that those who go into income drawdown could increase their annual income by 13% by switching from a higher cost provider to a lower cost provider. It is crucial that you do as much research as possible to ensure you select a retirement option that best suits your needs. This means finding a solution that enables you to access the right amount of cash as and when you want it, and for as long as you need it.<\/p>\n 8. Consider regulated financial advice as an investment<\/strong> \u2013 Many people are concerned about the cost of regulated advice without realising that when you buy retirement products such as annuities, through for example online brokers, there are commissions to be paid which can cost just as much, if not more than getting advice. In fact, getting regulated advice should be seen as an investment; research from the International Longevity Centre carried out in 2017 suggests that \u2018affluent\u2019 individuals who receive advice are on average \u00a330,882 better off when it comes to pension income than those who don\u2019t take advice, and those who are \u2018just getting by\u2019 are on average \u00a325,859 better off. This is because an adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and then put a bespoke plan in place for you. This will also give you the benefit of consumer protection for the advice given, as well as a retirement plan tailored to your individual needs.<\/p>\n 9. Protect yourself from scams<\/strong> \u2013 Scammers often use highly professional looking websites and marketing literature to lure you in, and they tend to sound completely legitimate when they contact you. It\u2019s easy to see why so many people are fooled, and it isn\u2019t small amounts of money which are being taken. The Pensions Administration Standards Associationestimated last year that pension savers have lost more than \u00a31 billion to scams. So, whatever you\u2019re planning to do with your\u00a0retirement savings, it\u2019s really important to check whether any company that you\u2019re planning to use is registered with the Financial Conduct Authority<\/a> (FCA). You can also visit the FCA\u2019s ScamSmart<\/a> website which includes a warning list of companies operating without authorisation or running scams.<\/p>\n 10. What is right for YOU? – <\/strong>It\u2019s now easier than ever to access your retirement savings. This is great news, but it\u2019s also a frightening prospect because of the potential risks involved in managing your life\u2019s savings such as being scammed, paying more tax than necessary or running out of money during retirement. This is why it\u2019s crucial that you take your time to research and fully understand all of your options, so that you\u2019re armed with all the facts to make informed decisions that best suit your lifestyle choices and needs.<\/p>\n Jonathan Watts-Lay, Director at WEALTH at work, comments;<\/strong><\/p>\n \u201cThe New Year is a great time for those approaching retirement to have a good look at their financial plans and decide what income options to take at-retirement. It is really important that individuals look into all their options and shop around. For example, in the past many people automatically bought annuities from their pension provider, even though there may have been better rates available elsewhere<\/p>\n He continues; \u201cWatch out that you\u2019re not taken by surprise by an unexpected tax bill, as individuals could end up paying 200 times more tax\u00a0depending on the way they decide to access their retirement income. I urge everyone to check the tax they will be paying before they make any decisions.\u201d<\/p>\n Watts-Lay concludes; \u201cMany workplaces now offer support to their employees in terms of financial education, guidance and advice, so individuals should speak to their employer to find out what is available to help them.\u201d<\/p>\n Further coverage was gained in the Express<\/a>.<\/p>\n