{"id":924,"date":"2018-02-13T09:35:02","date_gmt":"2018-02-13T09:35:02","guid":{"rendered":"http:\/\/www.wealthatwork.co.uk\/jpm\/?p=924"},"modified":"2018-10-09T13:37:34","modified_gmt":"2018-10-09T13:37:34","slug":"considerations-when-planning-your-retirement-income","status":"publish","type":"post","link":"https:\/\/www2.wealthatwork.co.uk\/jpm\/2018\/02\/13\/considerations-when-planning-your-retirement-income\/","title":{"rendered":"Considerations when planning your retirement income."},"content":{"rendered":"

\"shutterstock_168166421<\/strong><\/p>\n

Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education, guidance and advice in the workplace, answers some of the questions that individuals may be thinking about as they approach retirement.<\/strong><\/p>\n

1. Should I take my tax-free cash from my pension?<\/strong><\/p>\n

\u201cDefined contribution (DC) pensions give you an option to take up to 25% of the value of your fund as a tax free cash sum. This can be used as you wish but taking money simply because you can when you don\u2019t need it immediately is questionable. Taking tax free cash is not a one-off decision, it may be worth considering only taking what you need and leaving the remainder to grow in your pension until you do need it \u2013 this is known as \u2018phasing\u2019. This can make more sense than transferring your savings from the tax-free environment of your pension into other taxable savings or investments \u2013 phasing the payment of tax free cash can provide a more tax efficient income in retirement.\u201d<\/p>\n

2. Will the LTA and the AA be cut?<\/strong><\/p>\n

\u201cThere have been no announcements to cut the LTA and AA. In November\u2019s Budget, it was confirmed that the LTA for pension savings will increase in line with the Consumer Price Index, rising to \u00a31,030,000 for 2018-19. It\u2019s important that individuals understand the rules around LTA and AA and take a view of their situation so that any tax charges don\u2019t come as a nasty surprise.\u201d<\/p>\n

3. Will the Government abolish tax-free cash from pensions?<\/strong><\/p>\n

\u201cWhile no one knows what the future holds, this is probably unlikely as it will undoubtedly be very unpopular with the voting public so no government would take this decision lightly. I suspect there would be moves to reduce tax relief on pension contributions before tax free cash was touched.\u201d<\/p>\n

4. Should I transfer my DB scheme?<\/strong><\/p>\n

\u201cIn the past the majority of people were better off staying in their defined benefit (DB) scheme. It was only worth considering leaving it if someone was seriously ill, or where debt or lack of cash was creating significant life pressure. However recently, there have been some very generous transfer values being offered to leave these schemes. These are difficult to ignore but should be carefully considered, as it\u2019s not going to be a good deal for all. It\u2019s important that you get a good understanding of your own personal situation and take advice from a suitably qualified financial adviser who specialises in this type of transfer before you decide.\u201d<\/p>\n

5. Should I still buy an annuity?<\/strong><\/p>\n

\u201cBefore the pension changes in 2015 the majority of people had to buy an annuity with their pension savings. But since the new flexibilities were launched, the number of annuity purchases have fallen dramatically. The downside is that they currently offer poor value for money and there are now other options to make the most of your pension savings. But some like that annuities offer a guaranteed income for life. They may also be suitable for those who do not wish to take any investment risk, or for those who have no dependants or beneficiaries to leave their funds to. However, everyone\u2019s circumstance will differ, so it\u2019s important to make the right choice for you as it will affect you for the rest of your life. Financial advice can help with this as an adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and provide you with a retirement income strategy that best suits your needs.\u201d<\/p>\n

6. How much can I take from my pot and not run out?<\/strong><\/p>\n

\u201cHow much you can take from a defined contribution pension before it runs out depends on various factors such as; the amount you have managed to build up, how the fund\u2019s investments perform, your outgoings (both essential and discretionary) and how long you live. For example, a 65-year old man now has a 50% chance of living to 87 and a woman of the same age has the same chance of living until she\u2019s 90, so making your retirement savings last is key.<\/p>\n

But don\u2019t forget, it\u2019s not a one-off decision; it\u2019s advisable to regularly review your choices throughout your retirement as your needs evolve and income needs may change. For example, income requirements are widely believed to follow a \u2018u shape\u2019 in retirement with the first \u2018active\u2019 phase being the most expensive. Spending seems to fall 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. But costs then may go up later in retirement in the \u2018supported\u2019 phase, if extra care and support is required.\u201d<\/p>\n

7. Can I take my whole pension as a lump sum?<\/strong><\/p>\n

\u201cIt is possible to take your entire pension pot as a lump sum and most schemes will do this for you but it\u2019s not something that should be taken lightly. This is because although the first 25% will normally be tax-free, the remaining 75% will be added to your income and taxed at your marginal rate, so you could find yourself with a huge tax bill if you don\u2019t plan carefully. Cashing in may be appealing for some but it is important to consider how you are going to fund your retirement income going forward. Also, some people don\u2019t realise that if you are taking it simply to put into a deposit account, you will be losing tax benefits and the opportunity for it to grow in value; therefore leaving you worse off than if you had left it alone.\u201d<\/p>\n

8. Do I have to take an income?<\/strong><\/p>\n

\u201cFrom age 55 your defined contribution pension fund is accessible whenever you want it, but just because it is available doesn\u2019t mean you should take income immediately. You can withdraw any amount, over whatever period you choose. You can therefore wait until it is in your best interests to do this and in the meantime, your savings can grow within the tax efficient pension wrapper. Also it is worth knowing that using other taxable savings before your pension can help you make the most your income tax allowances. Alternatively those who are in a position to do so, could leave their pension pot untouched and pass it on in its entirety to any beneficiaries when they die. This would be tax free if they were to pass away before age 75.\u201d<\/p>\n

9. Will my pension be taxed if I withdraw income from it?<\/strong><\/p>\n

\u201cThe first 25% you take from your defined contribution pension will normally be tax-free and the remainder will be added to your income and taxed at your marginal rate. With careful planning it is possible for individuals to utilise their available tax allowances in a structured way to maximise returns and reduce, or even eliminate, potential tax charges. For example, where possible it may be beneficial to draw money from taxable savings rather than from the tax efficient wrapper of a pension.\u201d<\/p>\n

10. Can I cash in my annuity?<\/strong>
\n\u201cLast year the Government made a U-turn on allowing individuals to sell their annuities for a cash lump sum. Although this may have left those who wanted to cash in on their annuities disappointed, in reality it may have not been a good thing as they probably wouldn\u2019t have been able to get a good deal and it would have left many vulnerable to scammers.\u201d<\/p>\n

 <\/p>\n

Further coverage was gained in Moneywise<\/a>\u00a0and Interactive Investor<\/a>.<\/h5>\n ","protected":false},"excerpt":{"rendered":"

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