Pensions flexibility – more choice; more danger.
The Investors Compensation Scheme and the Financial Ombudsman cover regulated investments.
Ensure you have this protection by using only a regulated adviser using regulated investments.
Advice on retirement and pension planning is now even more important in the light of recent changes in pension legislation
Saving into a pension is long term commitment. Getting the right one, making it tax-efficient, selecting the investment strategy and monitoring it can all make a big difference over the long term.
Reviewing your pension will help towards delivering the benefits you need in retirement.
Near retirement you need to know that you can meet your goals at the right time and your money will last as long as you need it.
We will guide you through the choices, step by step.
Benefits can be taken from a pension plan at age 55 onwards. A quarter of the fund can be taken as a cash sum, or deferred and taken later. The pension doesn’t actually have to commence at the same time as the lump-sum is taken and the type of pension doesn’t need to be determined until it is set up.
(Pension pots of £10,000 or less can be wholly cashed-in, but only 25% will be tax-free).
In simple terms, assuming the lump-sum is taken, the remaining fund can be used to provide either:
In certain cases combination of the two may be appropriate
The annuity option can be subdivided into three categories:
This is set up at commencement and cannot subsequently be altered. This is the safest form of retirement income as it is not dependent on investment.
Part of the fund is used to provide an income. The remainder is invested with the aim of increasing the fund to provide a higher annuity later on.
This provides a lower income than the lifetime annuity at outset. The fund is invested with the aim of providing an increasing annuity over time.
Within these categories there are number of options; such as the provision of a dependant’s pension and guaranteed annual increases; all of which reduce the initial amount of income.
Annuity purchase is a one-off event. Once the annuity route is taken it cannot be altered.
Flexible Access Drawdown
With this option the fund is invested and payments are drawn from it, either in the form of regular income or lump-sums. Both are taxable, as the tax-free element has already been taken.
Care must be taken in setting the appropriate rate of income withdrawal to avoid depleting the fund over time, so regular monitoring and reviews are strongly advised.
Although it gives greater flexibility, a prudent rate of withdrawal will probably mean a lower income than an annuity. Obviously it involves an element of investment risk (although an annuity can be purchased at a later stage).
On death either a dependant’s pension or a lump-sum can be provided. If the death occurs before age 75 there is no tax charge; if over 75 then normal tax rates apply to the recipient
This is a brief outline of the most common options. It should not be relied upon or treated as advice