Pension Options Page

Financial commitments and pension planning

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A Delicate Balance 

Financial commitments and pension planning 

The challenge of managing bills and other financial obligations while simultaneously saving for a pension may seem daunting. However, it is certainly achievable with the right planning and timely action. The sooner you start, the more advantageous it could be if you contribute to a defined contribution pension. 

This is a type of pension where the amount you receive when you retire depends on how much you put in and how much this money grows. Your pension pot is built from your contributions and employer’s contributions (if applicable), plus investment returns and tax relief. 

Here are 6 practical strategies you can consider 

Utilising Salary Increases for Pension Contributions

Let’s begin with a straightforward approach if you find contributing as much as you’d like to your pension challenging. Initially, contribute an amount you can comfortably afford. Then, whenever you receive a salary increase, allocate a portion of it directly into your pension. This method ensures that you do not become accustomed to spending the additional income while still benefiting from the pay rise. 

Maximising Employer Contributions 

Many employers offer to increase their contributions if you decide to increase yours (up to a certain limit). Therefore, by contributing an extra per cent or two of your salary, they might also contribute more. It would be beneficial to inquire about your employer’s pension contribution policy. 

Boosting your Pension with Lump Sum Payments 

If you encounter a windfall, consider making a lump sum payment into your pension. This is a quick and effortless way to enhance your pension fund. As with regular contributions, the government will top up lump sum payments with tax relief (subject to certain limits). 

Delaying Access to Your Pension Pot 

Allowing your pension to remain untouched for an extended period can potentially lead to its growth. Leaving your pension invested for a few more years could make a substantial difference if you’ve had your pension for a while. However, it’s crucial to remember that there’s no guarantee of growth as investments can fluctuate. 

Being Selective with your Investment Choices 

Your investment choices for your pension can significantly influence your returns at retirement. For example, your scheme’s ‘default’ investment option may not be the most suitable for you. Therefore, it’s worth examining the investment funds where your money is placed. 

The process of making changes to your pension will vary depending on the type of scheme you have. With many modern schemes, alterations can be made online with just a few clicks. Check your policy information or speak to your employer for further details.  

Investing more when regular expenditure ends 

A similar strategy can be employed when you’ve completed regular payments. For instance, once a car loan is fully paid off, consider redirecting the freed-up funds into your pension plan. Even modest increases like these can yield significant results over time. Plus, should you need to reduce your outgoings in the future, it’s typically possible to decrease your contributions.

If you’d like to discuss your pensions with a professional Financial Adviser, please get in touch:

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Financial advice when planning retirement

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People who are confident about their retirement are most likely to have specific retirement goals and know what steps they need to take to reach them. But sadly, we see many people do not feel confident that they will have enough savings to live comfortably after they retire.

Many people have a fear of outliving their money, but most don’t have a clear idea of how much money they need during retirement. It’s important to remember that retirement doesn’t happen at a certain age, it happens when you have enough money to live on.

Seeking professional financial advice can help create a clear direction and understanding which will give you peace of mind that you are on the right track.

If you’d like to discuss your retirement, and would like to speak to an expert Financial Adviser, please get in touch:

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Understanding Pension Schemes

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Retirement forecasting can be tricky and that’s where the cash flow forecast software comes into its own, helping you visualise your expenditure, income and preferred lifestyle.

Cash flow forecasting is a way of planning and analysing your financial goals, projecting them forwards over time, to consider how changing circumstances will impact this plan and to see how likely it is these financial goals can be achieved and the actions needed to be taken along the way.

If you’d like to know more about cash flow forecasting, or would like to talk to us about retirement planning, please get in touch:

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Building A Reliable Income for your Golden Years

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Annuity Shopping

When it comes to using your pension pot, buying an annuity is one option that provides a regular and guaranteed retirement income for either your lifetime or a fixed term. However, it’s important to note that purchasing an annuity is typically an irreversible decision.

Do you know that shopping around for an annuity could earn you £15,000 more over your retirement? Recent analysis has shed light on the benefits of exploring your options regarding annuities. Therefore, it becomes crucial to carefully consider your options, select the appropriate type of annuity and strive to secure the best possible deal.

Valuable tool for retirement planning

Annuities are a valuable tool for retirement planning as they offer a reliable and predictable income stream, often lacking in other investment options. Furthermore, certain annuities can be linked to inflation rates, providing stability during periods of economic volatility. This makes annuities attractive for individuals prioritising risk aversion in their pension savings strategy.

The primary difference between annuities and pension drawdown products is that annuities require using the entire pension pot to purchase an insurance product that provides a fixed retirement income. In contrast, pension drawdown products allow flexible income withdrawals with the remaining funds invested.

Balance security and flexibility

Unlike pension drawdown arrangements, annuities do not typically pass down any remaining funds to beneficiaries after the holder’s death. However, it is possible to balance security and flexibility by partially combining annuities with pension drawdown.

According to the analysis, a 66-year-old with a £100,000 pension pot can now purchase

an annuity with an annual income of £6,790. This represents an increase of £842 compared to the previous year. The surge in interest rates has resulted in the highest demand for annuities in years.

Importance of shopping around

Data further emphasises the importance of shopping around. It has revealed that the difference between the best and worst annuity rates available can be substantial. For a 66-year-old with a £100,000 pension pot, rates can differ by as much as 9.1%, translating to a potential annual income difference of £622 or a staggering £14,928 over the average retirement period.

The recent focus on annuities can be attributed to rising interest rates, which have a tangible impact on the income of those who have already purchased an annuity. However, it is essential to understand that while record rates are advantageous, they should be considered part of a broader discussion.

Looking for a guaranteed income throughout your lifetime?

Annuities continue to be attractive for individuals seeking peace of mind and the assurance of a guaranteed income throughout their lifetime. If you are contemplating an annuity, speak to us and we will explain how to assess all your options. As the research suggests, shopping around is crucial in securing the best possible deal for your retirement income.

If you’d like to discuss your retirement income, please get in touch using the form below:

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Passing on wealth through your pension

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New research reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

If you’d like to discuss how to transfer wealth through your pension, please get in touch:

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Will you make the right decisions around your pension pot?

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Will you make the right decisions around your pension pot?

The announcement of the removal of the Lifetime Allowance (LTA) from the 2024/25 tax year in the Spring Budget 2023 has made defined contribution pensions even more appealing for wealth transfer. This benefits individuals over 55 who intend to leave their tax-free lump sum intact with their pension to maximise their benefits.

There may be further changes to pension allowance rules. However, removing the LTA charge allows for an unlimited sum tax-free for individuals who pass away before age 75. After the age of 75, the sum will be subject to taxation at the beneficiary’s marginal rate. It is important to note that although the charge has been removed, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments.

Without incurring Inheritance (IHT) Tax

New research* reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

Pensions usually don’t count towards a person’s estate for IHT purposes, and can be passed on completely tax-free if someone dies before the age of 75. With no LTA charge and an increased annual pension allowance, pensions have become attractive for those looking to mitigate IHT.

Pension as a tax-free lump sum

The research also found that almost half of all consumers (46%) believe that the amount that can be taken out of a pension as a tax-free lump sum should increase in line with inflation. It is worth noting that since the LTA has been abolished, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments. This means that individuals are currently limited to withdrawing a maximum of 25% of the previous LTA as a tax-free lump sum from their pension, unless any protection is in place.

Tips to ensure your beneficiaries benefit from your pension:

  • Check if your pension offers death benefits: Not all pensions provide the same level of flexibility when it comes to death benefits.
  • Check with your provider to see if your pension plan allows you to nominate beneficiaries who will inherit your pension savings, as beneficiary drawdown may not be an option.
  • Specify your beneficiaries: While making a Will can be beneficial in many ways, it usually doesn’t control who inherits your pension savings. Your pension provider or trustees have the final say in where your pension savings go.
  • Name your beneficiaries directly with your pension provider or employer to ensure your wishes are considered.
  • Regularly review your beneficiaries: Life circumstances change, and reviewing and updating your beneficiaries as needed is essential. Major life events like the birth of children, marriages or divorces can impact who you want to receive your pension savings. Ultimately the trustees of a scheme have discretion. So although there are no guarantees, by keeping your beneficiaries up to date, you can ensure that your desired
  • Beneficiaries are considered first when it comes to your pension savings should you pass away.
  • Consider the tax implications: Pensions can be a tax-efficient way to pass on your wealth since they are not typically subject to
  • Inheritance Tax. With the removal of the lifetime allowance charge, pensions offer an even more attractive option for passing on your wealth to your loved ones. However, it’s essential to consider any potential tax liabilities your beneficiaries may face when receiving your pension funds.

Remember, seeking professional advice tailored to your specific circumstances regarding financial planning and pension matters is essential.

Do you want to discuss creating a retirement plan to give you the confidence to enjoy later life?

Retirement should be the golden age of your life. It’s when you finally relax, enjoy new hobbies, travel or spend time with loved ones. But retirement can only be fully enjoyed if you have financial freedom. To discuss your options or to find out more, please get in touch with us using the form below:

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*Opinium conducted research for Standard Life among 2000 UK adults, aged 18+ between 12-16th May 2023, results weighted to nationally representative.

Our Pension Services

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We offer help and financial advice on all aspects of pension planning, from the basics of pension savings and tax-relief to the more complex areas of pension sharing on divorce and estate planning.

There are various benefits of pension planning including tax relief, potential cost savings and legacy planning.

One of the main benefits is making sure that you are on track to meet your retirement goals. Our Financial Advisors use sophisticated cash flow forecasting software to help you bring your financial future to life.

How much of my pension can I take tax-free?

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Many over-55s are unaware that they can access 25% of their pension pot tax-free.

A surprising 43% of individuals over 55 need to be made aware that they can withdraw 25% of their pension pot tax-free, according to recent research[1]. Knowledge could lead to better decision making when it comes to accessing pension savings.

Similarly, 52% of those surveyed between the ages of 50 and 54 were also unaware of this rule, indicating a widespread lack of understanding about pension withdrawal options.

We answer the important questions regarding tax-free pension withdrawals.

How much can I withdraw from my pension tax-free?

Typically, most people can withdraw 25% of their total pension pot tax-free, although this may vary depending on the type of pension plan and if you’ve exceeded your lifetime allowance. The remaining 75% is subject to Income Tax when withdrawn.

When can I take my tax-free lump sum?

Generally, you can access your pension savings, including the tax-free lump sum, at age 55 (rising to 57 in 2028). In rare cases, you may be able to access your pension earlier due to ill health or a protected scheme.

Can I take my lump sum in smaller amounts?

This depends on your pension product and its terms. Taking smaller withdrawals over time can be beneficial in most cases, as it allows for potential growth and tax-efficiency.

Should I take my lump sum immediately?

It’s essential to consider the longevity of your pension savings throughout retirement. Taking too much too soon could result in running out of funds later in life. Delaying access to your savings may allow for additional growth.

Are there any implications to be aware of?

Accessing your pension savings can impact state benefits, such as Universal Credit or Pension Credit. Additionally, taking a tax-free lump sum won’t affect the amount you can contribute to your pension plan, but accessing taxable income may reduce your annual allowance.

Professional financial advice

Understanding your pension withdrawal options and seeking professional financial advice will help you make informed decisions and maximise your retirement savings. To learn more about how we can help you, please contact us today.

Source data: [1] Opinium conducted research among 2,000 UK adults aged 18+ between 12″16 May 2023 for Standard Life, part of Phoenix Group. Results have been weighted to be nationally representative.

Important information: A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

How can we help you?

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Pension pot options

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What can I do with my pension pot?

  1. Leave it untouched for now and take the money later
  2. Receive a guaranteed income (annuity)
  3. Receive an adjustable income (flexi-access drawdown)
  4. Take cash in lump sums (drawdown)
  5. Cash in your whole pot in one go
  6. Mix your options

For more guidance on your pension planning options, please get in touch.

Flexi-access drawdown

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Financial Adviser, Andy King, discusses flexi-access drawdown.

Flexi-access drawdown is one of the pension fund options at retirement and can also be referred to as flexible retirement income, or flexible income drawdown.

Choosing the best way to use your pension fund is complicated so it is important to seek professional financial advice to help you understand your options and to make the best decisions for your hard earned pension pot.