Retirement planning
Your future is our priority.
Introduction
There are many options for planning your retirement, tax considerations, and pitfalls to avoid, all of which make it necessary to receive bespoke advice that caters to your lifestyle and the retirement you have planned.
Whatever you are planning for the future, we can help by calculating what you’ll need for retirement depending on the goals you have. We’ll ensure you understand how long your money will need to last to maintain the lifestyle you want, and how you can stay on track towards reaching your retirement goals.
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A Self-Invested Personal Pension (SIPP) represents a versatile pension scheme, granting access to a broader spectrum of investment opportunities compared to standard personal pensions.
A SIPP falls under the category of Defined Contribution (DC) pensions.
It’s important to note that SIPPs are not appropriate for everyone. They tend to have higher costs than a standard pension and are generally only suitable for individuals with a fair amount of experience in actively overseeing their investments.
Pension drawdown, or ‘flexible retirement income,’ is a method of receiving pension income upon retirement. Rather than deploying the entire sum in your pension fund to purchase an annuity, you opt to keep some of your money invested and withdraw a regular income directly from the fund. This gives the funds that remain invested the potential to increase in value.
You can take up to 25% of the pot as a tax-free lump sum, generally up to a maximum of £268,275. The remaining funds are moved into drawdown and any withdrawals will be subject to income tax in the tax year they are made.
You will need to decide how to invest the remaining 75% of your pension pot that you transition into drawdown. Selecting investment funds should align with your withdrawal plans and risk tolerance. It’s crucial to carefully consider your investment selections and the timing of your withdrawals. Keep in mind, the income from these investments is not assured since the value of investments can decrease as well as increase, and so the level of income you take will need to be reviewed regularly. Withdrawing too much money prematurely will reduce the size of your pension fund and the investment growth may not be sufficient to maintain the level of income you wish to draw. If you withdraw money at a rate greater than the growth achieved by your investments, your remaining fund will reduce in value.
It’s also possible to shift your pension pot into income drawdown incrementally. With each portion you transfer, you can take up to 25% as a tax-free sum, while the remainder goes into pension drawdown. This approach is often referred to as phased or partial drawdown.
An annuity is a financial product that you can buy with some or all of your pension funds after you have taken your 25% tax-free cash. It offers a guaranteed income for the rest of your life.
You have the option to customise an annuity with various features, such as protection against inflation. Additionally, you can incorporate death benefits to allow the income to continue for a beneficiary after your death.
Your income rate from the annuity can change based on your health conditions. These are often referred to as enhanced or impaired life annuities, considering factors from your height and weight to your blood pressure and even serious health issues. The annuity provider evaluates your specific situation to offer a personalised income rate.
Annuities can provide a secure, guaranteed income which can be extremely valuable, potentially making them an important part of your overall income strategy, especially as you age or if your willingness and ability to take financial risks decrease.
As annuity rates can change substantially and rapidly, there is no guarantee that when you do purchase an annuity the rates will be favourable. This could mean that your pension thereafter may be less than you hoped for.
As you edge closer to retiring, the income you would normally receive from employment or your business may instead come from your pension pot(s).
The biggest worry for many people is running out of money when they decide to retire. So, how do you make your money last as long as you do?
There are several options to consider, including using your pension fund to purchase an annuity which can secure you an income for the rest of your life.
Another option is pension drawdown which allows you to take income from your retirement fund rather than buying an annuity, but due to the risks involved, you will need to take specialist advice.
The changes to pension freedoms that now allow people to have full access to defined contribution (DC) pensions from age 55, with unrestricted income is good news. These new rules remove most of the concerns people may have had in the past about inflexibility with pensions. You should carefully consider your options when thinking about retirement as it is an important decision to make.
You can also access free impartial pensions guidance from the Pension Wise website, or you can book an appointment over the telephone: 0800 011 397.
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This next stage of your life can be full of opportunities and choice. It can be a time to rethink and reassess your priorities, and what you want to get out of life.
And like any great adventure, robust planning can make the difference between a good retirement and a great one.
However, along with all the opportunities that retirement brings, the responsibility to make the right choices, and ensure your money lasts as long as you do, is now with you.
It’s also important to remember that your financial circumstances will continue to change throughout your retirement. You will need to make ongoing choices, and review your strategy regularly to make sure your everything stays on track.
There is a lot to consider when you access your retirement benefits, and it’s important to remember that you don’t have to make all of your decisions in one go.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
