How to plan for retirement:
The main sources our clients tend to receive their income from when they retire are: the state pension, private individual or workplace pensions, and savings such as ISA's.
Ensure you know how much you will receive from State Pension, and what age. Not everybody will get the full state pension.
Most of our clients will have several different pension schemes, as they have worked for various employers. Therefore, it is best to know how much they are worth and when they will start paying out.
The Options for Defined Benefit Schemes & Defined Contribution Scheme members
Defined Benefit Schemes provide pre-determined retirement income, based on your salary, years of employment and the accrual rate. These types of pensions are guaranteed for life, often paid between 60 and 65.
Members can take up to 25% as tax-free lump sum, the rest must be taken as retirement income.
Clients with a Defined Contribution Scheme have access to pots from the age 55 and it's your choice how and when to take the pension.
You can also choose to take flexible income, known as drawdown, where your money continues to be invested and payments are taken as and when they are needed.
Up to 25% of the pension fund can be taken as a tax-free lump sum.
The Tax Positions
Avoid pushing yourself into a higher tax bracket if possible, income from pensions is taxed the same way as any other income.
Only take out as much income as you need, if you take out too much pension income in any tax year it can push you into a higher tax bracket.
Pension savings can be passed on tax-free to your loved ones if you die before your 75th birthday. If you die after age 75, any unused pension is taxed at your loved one's income rate.
The Benefits of Deferring your Pension
If you don't need to take all of your retirement income, you can consider deferring it to a later date. This should see you receive higher pension later.
Anyone who reaches State Pension age after 5th April 2016 (provided they defer their State Pension by at least nine weeks), will see the State Pension increase by 1% for every nine weeks it is deferred.
If the State Pension is deferred by a year, it will increase just under 5.8%.
Having a private Defined Contribution Pension savings gives people maximum flexibility.
Watch out for Scammers!
Scams start with cold-calling, emails or texts, making offers which sound too good to be true. Avoid any unregulated and unusual investments, and promised returns, scammers can reel you in.
Protect your pension!
This January we are offering a limited amount of complimentary Retirement Reviews. For more information & to request a review, please visit our Complimentary Retirement Review page.
It is important that no actions should be taken without advice, and the risk warning should be taken notice in all cases. Personal circumstances and risk profile mean that the advice for one person which may not be the same for everyone. Reeves Independent cannot give advice on Defined Benefit Schemes, all enquiries will be passed to a specialist third party.