Pension freedoms gave retirees far greater flexibility with the ways they use their pension pots. What’s more, many more people are approaching retirement with an investment portfolio.
It could be that you still want to invest when you are retired. But the investments that helped build up the pension pot and portfolio may no longer be appropriate when the need for a secure income begins to take priority over capital growth. Successful investment – like successful retirement – requires planning. But what are the options for investment in retirement?
Will you be investing in retirement?
You don’t have to invest your pension pot at all.
You could simply have an annuity. This is an income guaranteed for life that you buy from an insurance company, with all or part of your pension pot, and possibly your other investments as well. Once set up it will be paid until you die, and you can arrange for it to provide an income for your spouse or partner after you pass away, and even increase in line with inflation.
The income will vary between insurance companies, and will depend on factors like your age, health and lifestyle. So, you should shop around to ensure you’re getting the most appropriate deal. Annuities can’t normally be changed once set up, but you can be safe in the knowledge that your income will never run out.
The problem with annuities is that rates are low, and your large pension pot can result in a depressingly small income. This is why many people choose the alternative approach of drawdown. With it, your pension pot stays invested so it has the potential for further growth, while you are free to take the income you need. Drawdown comes with more risk as your investments could fall in value and so your income isn’t so secure. However, if you have a good sized pot and so don’t take all the interest it generates as income you could keep your capital intact, and even grow it.
Most pension companies will be happy to keep your pension pot invested for your drawdown – although it is possible to manage your investments yourself if you feel confident in doing so.
You can pick your own investments, use ready-made funds, or work with an adviser to choose the investments which are suitable for you.
Whatever you decide, to ensure your investment plan is helping you achieve your goals, you need to review it regularly. As with any portfolio, this will involve checking your investments and making changes when necessary. If you’re taking an income, you will also need to check the amount you’re withdrawing is sustainable.
You will also need to look at your tax position. As soon as you go over your annual tax-free personal allowance (currently £11,850 for tax year 2018/19 rising to £12,500 in tax year 2019/20, you will start to pay tax on your pension income.
Naturally this will involve some expert advice, and ongoing support during your retirement years. At Continuum, we will be very happy to provide it
The value of investments 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.
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.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.