At one time people stayed in the same job and at the end, either had a company pension plus the state pension or simply relied on the state pension and either would be paid until they died.
Pension freedom means that you now have choices about your pension – and new ways to make the most of it. We look at the preparations you need before you retire.
What do you need to do?
It is tempting to think that if you have arranged a pension plan you have done enough, and it will be waiting to provide the income you need when you retire.
It might be – but your future is too important to leave to chance. What’s more, your pension needs may actually be increasing. More of us are living into our 80s and 90s. It means more years of income will need to be arranged. More of us will need care and support as we reach our tenth decade. It means our funding needs could potentially be increasing.
Decide what kind of retirement you want
We all have different plans for our retirement. In an ideal world you’ll have paid off your mortgage and have financially independent offspring and be ready to live the way you want.
Of course, you may change your mind. Your priorities when you’re 50 might be different when you’re 70 or 80.
Whatever they are, your personal plans will dictate how much money you need.
Work out how much you need
Working out the lifestyle you want in your retirement will give you a clear indication of how much income you’ll need to sustain it. Allow for inflation. You should probably consider the costs of care too.
You will probably come up with a figure that seems impossibly high – but remember there are now many ways to manage your pension pot, and it might be possible to stretch it a little further. You might also decide that you need to put more money into your pension plan to get the level of returns you want.
You can save up to £40,000 a year into your pension, or as much as you earn in a year, inclusive of tax relief. The maximum you can have in your pension pot without a tax charge – the Lifetime Allowance – is £1,054,800 for the 2019/2020 tax year.
Review your plans
Making the most of your pension can be the most effective way to prepare for retirement thanks to the tax advantages it offers.
So, you need to take an active role and review your pension plan regularly.
Ask yourself – is your money growing fast enough? Do you need to put in more – or should you change how your money is invested? With some plans you may have very little choice, while with others such as SIPPs the way your pension is invested is very much up to you.
Annual reviews are probably essential to keep your plans on track.
Get expert advice
Perhaps the most important factor of all in making the most of your pension is the quality of advice you can call on.
Things like tax and allowances, selecting the right investment, and when the time comes, the best way to use your pension pot all demand up to date knowledge.
Fortunately, you can find it at Continuum.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.