The number one question we get asked when it comes to pensions and retirement is how much money do I need? Though there is no one single answer for everyone, the process of figuring out your magic number will not be dissimilar to others. Though this is best done with the support and guidance of a qualified IFA, to get you started on the though process please review our article, How Much is Enough in Retirement?
Bigmore Financial Planning will provide the helping hand to support you in achieving your goals.
The good news is that pensions have kept up with the ever-changing retirement landscape. They now offer far more freedom than they have ever done previously. You are now free to draw from your accumulated pension pot from age 55 whether still working or not. Plus, you can draw out as much or as little as you like without restriction. 25% of your pot remains tax free and the balance incurs income tax. Having access to lump sums and variable income can be an immense help when it comes to retirement planning.
You may still purchase an annuity to provide a guaranteed income or pension income through income drawdown. Annuities are designed to provide a known benefit for life regardless of how long you live but do not typically offer a lump sum death benefit.
Pension Freedoms legislation has changed the pension and retirement landscape significantly over recent years. Income drawdown is now much more flexible and enables you to take flexible unsecured pension income as and when you require. This means that you can regularly revise your income requirements as your personal circumstances change.
However, as your pension pot remains invested it is down to investment performance over time to ensure your income is maintained. That obviously does mean your income can reduce or run out altogether.
There is also the added benefit with Income Drawdown of being able to pass on your pension pot to your spouse and family.
You even have more choice over whom and how to pass on your pension. Historically half your income tended to pass to your spouse, and which ceased on second death. The income drawdown route today allows you to pass the whole pot to whomever you choose and if kept within a pension wrapper can now pass-through multiple generations. Pension death benefits are typically entirely tax free if you die before age 75 and liable to income tax to the beneficiary if after age 75.
From 2027, pensions will fall into your estate for Inheritance Tax purposes. This is another reason why seeking personal financial advice about the best way to manage your pension is important.
More choice in how and when we take our retirement income can only be a positive thing but with more choice comes more complexity and risk. Should you take a guaranteed income that dies with you or a flexible pension that could run out before you die? It has never been more important to fully review all your pension options before taking a scheme pension or annuity from your current pension provider. The key factor today is looking at all your likely retirement needs and planning a pension solution that most closely matches this.
