How to use your pension pot for the years ahead
As you approach retirement, you will have to decide how best to use your pension pot for the years ahead. One of the ways of doing this is by entering income drawdown. Unlike an annuity, with income drawdown, your money remains invested and you take a pension income directly from it. This is a flexible way to take your pension benefits, although it may not be suitable if you want the security of income that an annuity offers.
The lack of professional financial advice can be costly
You only have one opportunity to shop around for your annuity. This is called ‘exercising the open market option’. Once you have committed to an annuity provider and started to receive an income, the decision can’t be reversed.
If you save through a private personal pension, when you approach retirement age you’ll have to decide what to do with the pension pot you have built up. If applicable to you, one option is to buy an annuity. It’s important to find an annuity that suits you and provides the best deal because, after your property, an annuity is probably the biggest purchase you will ever make.
A limit on the amount of tax relief you’re allowed
You can save as much as you like into a pension, but there is a limit on the amount of tax relief you’re allowed. From 6 April 2014, the Lifetime Allowance for pensions reduced from £1.5m to £1.25m. In essence, the Lifetime Allowance is intended to cap the level of tax advantaged pension funds that an individual can accumulate within their lifetime.
Coming to terms with the realities of your later years
f you’ve not thought about planning your retirement yet, don’t panic. We can discuss the different options available to you. This may include a personal pension, or a defined contribution pension. If appropriate, your provider invests the money you pay in and gives you an accumulated sum on retirement, with which you can currently buy an annuity or go into income drawdown.
A regular income once you reach State Pension age
The State Pension gives you a regular income once you reach State Pension age. It is based on National Insurance contributions and the amount you get depends on how much you paid in. To receive it, you must have paid or been credited with National Insurance contributions.
Saving for your retirement may not seem important when you’re starting out. But the sooner you start saving for your retirement, the more secure your future will be.
Thinking about your plans for the future means taking action now
Retirement planning involves thinking about your plans for the future now – that means investing your money with the aim of maximising its value ready for when you retire. Careful retirement planning, the right mix of assets and starting sooner rather than later will help lead to the retirement you are looking for.
undamental plans proposed to redesign the UK defined contribution pension system (as opposed to workplace final salary schemes) were announced as part of the Budget 2014 speech. This is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921, introducing new flexibility to the pensions system.
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