“Freedom and choice in pensions” is something of a hot topic at the moment, but you may be unaware of what this means for you. After April 2015, once you reach the minimum retirement age of 55 (this may be earlier if forced to retire due to ill-health) you will have the freedom to access your personal/company pension as and when you please. There will no longer be an annual limit on how much you are allowed to withdraw and you will be able to use your pension fund “like a bank account”.
Income for most people will vary from year to year depending on their needs or preferences. For example, if you decide to work part-time you may not require much or any pension income initially. On the other hand, if you decide to retire fully before State Pension age, you might decide to “level out” your income by taking more pension now and a lower amount in the future once your State Pension starts. You could also decide to “dip in” as a one-off for a once in a lifetime holiday, to celebrate a major anniversary or birthday or for emergency purposes.
The Need for Planning
With this new flexibility, the need for planning is all the more important. The key things to consider are:
- Lifespan: Your pension fund will probably have to last for decades. Obviously you cannot know how long you will live for, but on average a 60 year old man will live for over 21 years and a 60 year old woman for over 24 years.
- Income needs: Your income needs are likely to vary over the years once you have retired. It is important to take this into account.
- Investment strategy: As your pension fund is for the long term, it is wise to have a spread of short term, medium term and longer term investments.
- Dependants: As your dependants or heirs can receive your pension after you die, they can decide to take it as either pension (in their own name) or as a lump sum.
Choosing A Pension
In choosing a pension provider you should take into account the following:
- The range of funds available to invest in
- Contract charges
- Whether you can access your pension easily online
- The provider’s financial strength
- How flexible the contract is and how efficient the administration is
Pension planning will always be a complex process, whether you are planning and saving for retirement or at retirement and ready to take your pension. That’s why it’s always helpful to consult an expert in this area. If you would like to speak with us about how we could help you work out what’s best for you, you can call us on 01246 296060 or connect with us via our website.
Article by Daniel Cook, Adviser Support for Charles James Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority