Choice never used to be part of retirement planning. When you hit state pension age, your private or workplace pension would buy an annuity, at whatever rate your pension provider was offering. If it didn’t suit your circumstances or your pension to was too small, it was simply too bad.
But now there is plenty of good news, because it does not have to be like that any more. At Continuum we have many ways to make your pension work harder, to let you choose when and how you will retire – and even to let you do it when you are as young as 55 – or in some cases even earlier.
So, the first piece of good news is that you can retire when and how want
But the changes do not stop there.
You also have choice about how you use the money saved into your pension – known as your pension pot. This is even better news because you are no longer restricted to an annuity. Annuity rates are currently very low and might not offer the returns you want after paying into your pension for years.
At Continuum we can provide options to make your pension pot work much harder to provide the kind of retirement income that you want.
So, what are these options?
Under the new flexible rules you can mix and match any of the following options, using different parts of one pension pot or using separate or combined pots.
1. Leave your pension pot to grow
You might be in a position to delay taking your pension until a later date. If you are fit and well and enjoying your work, there is nothing to stop you carring on with it.
You can continue to contribute to it or not, but whatever you choose, your pot can then continue to grow tax-free, which should mean it ca provide a larger income when you do come to access it.
Your pension may be in the right place, but in some cases, it may advisable to move the pension to another provider or fund manager for potentially better performance and/or charging structure. This will need professional advice and this is where Continuum may help.
Finally, your pension pots sit outside of your estate and therefore do not attract inheritance tax on death. This makes them a very tax efficient investment, so much so that many people, if they don’t need the money, now consider keeping their pension fund for as long as possible, as a key part of their estate planning plans.
2. Use your pension pot to buy an annuity
The old system of buying an annuity with your pension pot, which provides a guaranteed income for life is still a possibility, and it can work out as a sensible option for some people. There are different lifetime annuity options and you can choose to provide an income for life for a dependent or other beneficiary after you die.
But you have another choice. You are no longer restricted to an annuity from the pension company you built your pension pot with. You can shop around for a better rate.
3. Use your pot to provide a flexible retirement income
If you would like more in your pension pot, you can re-invest it into funds designed to provide you with a regular taxable income. This is known as drawdown. You set the income you want, though this might need be adjusted periodically to reflect the performance of your investments. Depending on the sums involved, you could have a pension pot that is steadily growing and the income you want. But careful planning is required. Unlike an annuity your income can’t be guaranteed for life. Talking to an expert from Continuum is vital.
4. Take cash from your pot
You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free.
For each cash withdrawal, normally the first 25% is tax-free and the rest counts as taxable income.
There might also be charges each time you make a cash withdrawal. You could even take the whole amount as cash in one go if you wish. There would be tax penalties, and without very careful planning, you could run out of money and have nothing to live on in retirement. It might be the right answer for you if you had a need for cash, and another source of income, such as another pension pot salted away.
5. The choice is yours
So, you have a choice about how you use your pension.
Actually, that should be choices, because you don’t even have to settle on one option when deciding how to access your pension pot. You can combine your options to provide the retirement income you need. You can even change what you do over time as your needs change.
A Continuum expert can help explain the options, and the advantages and disadvantages of each one.
To settle on the option that is best for you, we will need to sit down with you and discuss your personal and financial circumstances to understand:
- The current size of your pension pot
- Your other savings, and any investments you have
- Your age and health
- When you plan on stopping work
- What you want to do in retirement
- Whether you have financial dependents
- How your circumstances are likely to change in the future
Not only will it help you find the options that are right for you, our expertise – and the fact that we are independent – means that we can search the entire market to find.
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 pensions and 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.
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