Savings & Investments

Would you love to retire early?

 560 315 Jess Easby
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Craving a better work/life balance? Wanting to spend more time with family and friends? Yearning to get on with that bucket list that you haven’t quite finished or even started?

You are not alone. The pandemic has many of us look at life in a different manner, having been forced off that daily treadmill and now we just don’t want to get back on.

You may now be one of the many actively seeking early retirement options.

The key is to be in a financial position to enjoy this time of your life, while, making sure you don’t outlive your retirement savings. Whilst creating a retirement plan so you don’t run out of money sounds like an obvious choice, it may not be as straightforward as it sounds. For all you cannot know exactly how much money you will spend when you retire, you can know what your lifestyle costs are now to know if you are financially ready to retire.

Equally, with living costs rising and interest rates fluctuating, you may also need to factor in or consider generating additional income, to boost your state and private pensions.

Grandparents with family on beach after thinking they would love to retire earlyWould you love to retire early

The key imperative is to create a plan and to ask a qualified Financial Adviser to develop a living cash flow model for you, so you can see exactly the impact of income vs expenditure, where the income gaps are and put an action plan in place together.

Here at Ellis Bates, we will discuss the best ways to bring your early retirement plans to life. We want you to be able to enjoy the things in life that mean the most to you and your family.

So, we are ready when you are, to listen to you and help you plan.

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Make your money work harder

 569 315 Jess Easby
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Has lockdown lifted your savings?

A lot of people have shifted the way they think about life due to Covid-19. Families have focused on staying healthy and having a healthier work/life balance. These are now top of their priorities to protect themselves and their loved ones.

Some have saved that little bit extra during lockdown by not going out or on holiday. Investing your money wisely could be an option for you to consider. Investments could grow your capital and income and generate another income stream.

There is a lot of nervousness around finance and investments as a result of Covid-19. Key questions you may be considering are:

  • How will the markets perform with interest rate fluctuations?
  • How will I gain a good return?
  • How will we protect ourselves and our families against an uncertain future?

A regulated Financial Adviser can help answer these questions and guide you on a suitable investment strategy, based on your individual situation.

You work hard for your money and your money should work hard for you. 

Ellis Bates has a holistic view of financial planning. We understand that no two people have identical financial circumstances. We create a tailored plan that meets your individual needs and investment objectives. Your goal could be to make your cash work harder, fund education fees, contribute to a wedding, buy a new property or save for retirement.

If you like the idea of investing but are unsure where to start, get in touch for a free initial consultation today.

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Evolution of ESG Investing

 560 315 Jess Easby
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Changing Face of Investor Ethics and Behaviours

The coronavirus (COVID-19) pandemic has prompted an evolution of ESG investing. It has caused the desire to move into ethical and sustainable investing for more than half (51%) of advised UK adults, according a new report[1]. And while the trend is common across the generations, it’s Millennials who are leading the charge.

The report, which looks at intergenerational planning and wealth transfer between advised families amid the financial volatility and insecurity of the pandemic, found that 61% now care more about the environment and the planet than they did before the pandemic.

Financial Returns with a Positive Contribution

Investing sustainably means putting your money to work on issues ranging from adapting to and mitigating climate change, and improving working conditions and diversity, to tackling inequality. More and more, investors want to invest sustainably and they want to combine investing for a financial return with a positive contribution to the environment, society or both.

More than a quarter (26%) of respondents admit they are more concerned than they’ve ever been. One in five (21%) say they are more worried now that they have children and grandchildren.

Appetite for Sustainable Investments

The pandemic has undoubtedly fuelled investor demand for sustainable investing and this is trickling down through the generations – 60% of Millennials, 44% of Gen X and 35% of Baby Boomers confirmed that COVID-19 has increased their appetite for sustainable investments. And many investors go further: 45% confirmed that since the pandemic they now only want to invest in sustainable companies and funds.

Despite the desire for ethical and sustainable investing, more than a third (36%) of UK adults admit they actually have no idea what their current investments – including workplace and private pensions – are invested in, as they have little to no control.

Beginning an ‘Investment Journey’

For many, the crisis has shifted their financial priorities, prompting more to seek professional financial advice. One in two (53%) respondents said they had either already sought advice – or were planning to because of the pandemic. And just over one in five (21%) were seeking advice to begin their ‘investment journey’, potentially fuelled by individuals who had built up savings not having the traditional outlets for spending their income.

With £5.5 trillion in personal wealth due to be passed to the next generation by 2047[2], the role that intergenerational planning advice played prior to the pandemic was already a significant one. Yet the crisis has reframed financial priorities. Not just for those in later life with Inheritance Tax liabilities, but for all generations.

Planet, Environment and Society

Once perhaps viewed as a fad, ESG investing is becoming normalised, making it a fundamental building block within intergenerational financial planning. It also enables parents to leave their children more than just a financial legacy in terms of planet, environment and society.

Two in five advised clients surveyed confirmed they expect to increase the amount they invest in Environmental, Social and Governance (ESG) investments over the next five years.

If you would like to discuss  more on socially responsible investing, please get in touch.

Source data:
[1] Research was carried out by Opinium for Prudential UK & Europe, part of M&G plc, among a UK representative sample of 1,000 advised families. The study was completed in November 2020.
[2] Kings Court Trust’s Inheritance Economy Research Papers

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Building a better world

 560 315 Jess Easby
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Time for pensions to contribute towards building a better world

New landmark report from the United Nations on the state of climate science.

As we have been witnessing in recent years and months, climate changes are occurring in every region and globally. A new landmark report from the United Nations on the state of climate science has highlighted modern society’s continued dependence on fossil fuels, which is warming the world at a pace that is unprecedented in the past 2,000 years. Its effects are already apparent as record droughts, wildfires and floods devastate communities worldwide.

Put simply, net zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. We reach net zero when the amount we add is no more than the amount taken away. The UK became the world’s first major economy to set a target of being net zero by 2050.

Greenhouse Gas

The Intergovernmental Panel on Climate Change report published on 9 August emphasises there is still time to act, but it must happen immediately. Limiting climate change demands strong and sustained reductions in greenhouse gas emissions from human activities such as burning fossil fuels.

One of the main areas where change can make a significant difference to all of our futures is how and where our pension money is invested. But the facts are, if money is invested in a standard, default pension, it could be doing more harm than good.

Climate Change

Your pension is more than just a retirement fund, it can also contribute towards building a better world. However, one in four pension scheme members have never even heard of net zero, while three in ten can’t explain or understand the connection with their pension pots and climate change.

According to new research[1], almost nine in ten Defined Contribution (DC) scheme members were not aware of the importance of having their pension scheme aligned with a net zero goal. But, encouragingly, members were overwhelmingly in favour of their pensions moving towards net zero when the term was explained.

Collective Power

The survey also uncovered that one in four (25%) further three in ten (31%) have heard of it but could not say what it means. In fact, 70% of DC members prefer remaining invested and using their collective power to engage with companies to align their businesses with global climate change efforts, or prepare them to thrive in a low-carbon economy.

Two-thirds (64%) of all members have become more concerned about the impact of human actions on the planet following the COVID-19 crisis. Rather than deprioritising environmental issues in favour of immediate concerns, the pandemic has thrust them into sharper focus as members explicitly linked them with their current situation.

Performance Impact

Millennials are the strongest supporters of engagement, with 79% of them supporting providers’ stewardship activities. Their attitude also helps to explain their change of heart towards outright divestment. While still the most radical cohort of the three generations on this issue, half of Millennial members would consider divesting if it had no performance impact, while only two in five of them would divest no matter what.

Baby Boomers are twice as likely as Millennials to want to keep pensions as diversified as possible, even if that meant investing in fossil fuels, but the proportion has dropped from 30% to 25% over the past 18 months. The research also shows that more than a fifth of ‘Boomers’ (22%) are now happy to divest into a greener pension regardless of performance. This follows increased coverage of climate in the mainstream media and real concern about the impact of climate change on their children and grandchildren.

Younger Views

Millennial men are the most likely to want a net zero pension irrespective of the impact on financial performance. The proportion who feel this way (40%) is double that of the group showing the least interest, female Baby Boomers (20%).

As Baby Boomers move steadily into their retirement years, the balance of power will shift as Gen X starts to hold the largest share of pension assets. Younger views will be an  important factor in shaping the direction of travel over the next ten years. This new cohort can no longer be assumed to be simply chasing maximum financial returns regardless of the impact on the planet.

What good could your money do?

Humanity has its work cut out to create solutions to the many complex problems of the 21st century. We help you assess the risks – and opportunities – posed by companies’ and countries’ performance in critical areas, such as climate change, executive remuneration, and diversity and inclusion. Please speak to us for further information – we look forward to hearing from you.

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Source data: [1] Survey conducted in April 2021, based on a population of 3,056 adults currently contributing to a workplace pension. Legal & General Investment Management published 14 June 2021.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless you have a plan with 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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.
Women on laptop thinking about retiring from work and not a paycheck

Money’s too tight to mention

 560 315 Jess Easby
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Women on laptop thinking about retiring from work and not a paycheckLooking to retire from work, not a paycheck?

When it comes to retirement insecurity, one concern dominates all others – the fear of running out of money during retirement. And with people living longer than ever before, it’s a very valid concern.

A new report reveals how two-thirds (66%) of adults planning to retire this year risk running out of money[1].

The research found that a 2021 retiree plans to spend, on average, £21,000 a year in retirement – almost £10,000 less than the average UK household income (£29,900)[2].

Just two in five (39%) feel very confident that they’re financially ready to finish working this year, with a third (34%) of women feeling very confident versus two in five (43%) men.

Longer-term financial priorities and plans

Almost half (48%) of those surveyed are planning to reduce their usual spending to support themselves in retirement, while a quarter (27%) will work part-time to help financially. One in five (21%) are planning to sell their home or downsize to fund retirement.

Deciding how and when to retire is one of the biggest life decisions and transitions we make. Longer life expectancy, volatile investment markets and ever-changing regulation can make planning and preparing for retirement feel confusing, not to mention the impact of the coronavirus pandemic on people’s immediate and longer-term financial priorities and plans.

Apprehensions about retiring during a pandemic

Whatever the plan, when it comes to making the decision to retire, most people find it understandably daunting. Even more so if you don’t feel prepared. There are clearly more apprehensions about retiring during a pandemic amongst this year’s retirees. Pensions are without a doubt the most popular option for funding retirement, but it’s important retirees also consider any other savings or assets they can use when deciding whether they can afford to retire or not.

Understanding what money you have for your retirement and how to spend it wisely can be difficult, but that’s where preparation and obtaining professional financial advice can help. Circumstances or priorities may change,  particularly if you’re retiring amidst a global pandemic, but it will be much easier to adapt a plan you already have rather than start from scratch.

Helping you plan to enjoy the future you want

Longer lives, less proactive saving, higher costs of living and a lack of a financial planning are all contributing factors to the risk that many
people may outlive their money in retirement. If you would like to talk to us about your future retirement plan, we can help make sure it’s a resilient one. To find out more, please contact us.

Source data: [1] Consumer research of 2,000 UK adults who were either due to retire in the next 12 months, or had retired in the past 12 months. Research was carried out by Censuswide in February 2021. [2] ONS average household income, UK: financial year 2020
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). 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.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.
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an older couple on a boat after creating a secure retirement

Plan for a comfortable Retirement

 560 315 Jess Easby
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an older couple on a boat after creating a secure retirementCreating a comfortable, secure retirement takes care and forethought. If you’re 10 to 15 years from retirement, you’re probably starting to think more about how you’ll spend your life after work. You might be contemplating travelling more, dedicating more time to your passions or enjoying more free time with your family.

However, are you concerned that the idea of a financially comfortable retirement is increasingly unattainable? You might have some concerns about your pension savings and whether they’ll provide the income you need. If you haven’t already done so, now is the ideal time to take stock of your current situation and make any necessary alterations to ensure you’re on track. Here are five tips to help you get started.

1. Calculate your expected retirement spending

Everyone has a different idea of the ideal retirement and so will have different spending needs. Looking at your current outgoings is a good place to start. Calculate how much you spend each month on paying down debts, paying bills, essential spending and non-essential spending.

Then, consider what might increase or decrease over your retirement. For example, you may be reaching the end of your mortgage, which will mean your debt payments go down. But you might plan to take up a new hobby, which will mean your non-essential spending goes up.

Remember to factor in any large lump sums you plan to spend, such as helping your children with property deposits or taking a dream holiday.

2. Review your current wealth

You might have accumulated several different workplace pensions with different employers over your lifetime, so you’ll need to total the  savings you have in all of them. Start by contacting previous employers to find out the name of the pension provider. If you don’t have the details of each pension, we can help you trace them.

Remember, it’s not only pension savings that can dictate your retirement spending, but also other sources of income, such as buy-to-let properties or investment portfolios, so be sure to include these too.

3. Maximise your pension savings to help create a secure retirement

If your current pension savings won’t cover your expected retirement spending, you can adjust your current financial arrangements to help you reach your goal.

You may also want to make lump sum payments into your pension. If a lump sum would take you over the £40,000 pension annual allowance, you can use unused annual allowance from up to three previous years.

Your pension annual allowance is the most you can potentially save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax, unless there is carry forward available.

4. Adjust your investment strategy

Your pension savings might currently be invested based on a higher-risk strategy to maximise the potential returns on your investments. But as you approach retirement, you may want to choose a lower-risk strategy with an emphasis on preserving the wealth that you have rather than growing it.

Lower-risk strategies tend to result in fewer losses and slower, but more predictable, growth. That can be preferable when you’re trying to ensure your savings last a lifetime. We can help you establish the right strategy for your risk appetite and goals.

5. Consider a phased retirement

Some people want to stop working as soon as possible, but that’s not the right choice for everyone. They may dream of an early retirement in their mid-50s, but once they leave behind their workplace at such a young age they might not find retirement fulfilling. Also, the amount in their savings or portfolio may not reflect what they’ll need to enjoy the coming years and lifestyle they want.

These days, there is a trend for people increasingly deciding to slowly reduce the hours they work over a few years or to take on a part-time job in the early years of their retirement to keep busy and continue to contribute to a pension. Others may use a lump sum at the start of their retirement to establish a small business. There are many different retirement journeys that might suit your lifestyle and financial goals.

Feeling uncertain about your retirement?

Making all these decisions alone can be stressful, and no one should enter retirement feeling uncertain that their savings are sufficient to last a lifetime. Seeking professional financial advice can give you peace of mind so that you can relax and enjoy this next life stage. Speak to us for more information or to discuss your requirements in creating a secure retirement.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). 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.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek advice to understand your options at retirement.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain meanstested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.
Find Your Local Adviser
a lady looking out of a window thinking about pension freedoms

Pension freedoms

 560 315 Jess Easby
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a lady looking out of a window thinking about pension freedomsPension Freedoms – Looking for a wider choice of investment options?

Saving for your retirement is one of the longest and biggest financial commitments you will ever make. Imagine you’re retiring today. Have you thought about how you’re going to financially support yourself (and potentially your family too) with your current pension savings? The pension freedoms introduced in 2015 provide even more of an incentive to look again at your retirement savings.

If appropriate to your particular situation, one option to consider is a Self-Invested Personal Pension (SIPP), especially if you’re looking for a wider choice of investment options. It’s an option for people who are more comfortable with investment risk and who have more time to regularly review their pension investments to make sure they continue to meet their needs.

Range and flexibility of investment

First introduced in 1989, this structure provides a range and flexibility of investment that makes a SIPP one of the most flexible methods of saving for retirement.

UK residents can invest money into a SIPP up until the age of 75, and start withdrawing money from as early as 55 (57 from 6 April 2028). Tax relief is available on personal contributions up to £3,600 or 100% of relevant UK earnings (whichever is greater), with tax-efficiency also subject to the pension annual allowance, which is £40,000 for most people and applies to contributions from all sources, including employer. Any unused allowance from previous years may mean more than £40,000 can be contributed tax-efficiently.

Saving for a child or grandchild

Parents can also open a Junior SIPP for their children. It may seem a little premature to start putting money into a SIPP for your child or grandchild at birth, but the tax relief that is available on the contributions makes this a particularly attractive way to save for your child’s future. The money is tied up until they reach retirement age, so this money will not be accessed any time soon.

As with all Defined Contribution pension schemes, the amount that you will have available when you retire depends on the contributions that you (and any employers) have made and how your investments perform over time.

Bring everything together in one place

If you’ve got several pensions, it could make sense to bring everything together in one place. Even if the amounts are small, it all adds up. You can transfer most types of pensions to a SIPP and combine them, letting you manage your pension pot in one place. But SIPPs are not suitable for every investor and other types of pensions may be more appropriate. Once in a SIPP wrapper, your savings will grow free from UK Income Tax and Capital Gains Tax.

Just starting your pension journey?

Investing your retirement savings in a SIPP may not be for everyone. If you are not sure which type of pension scheme is best for you, it’s essential you obtain professional financial advice to review your options. To find out more about pension freedoms and to discuss your options – please contact us.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). 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.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain meanstested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.
Find Your Local Adviser
man at laptop trying to carry out a pension scam

Beat the Scammers

 560 315 Jess Easby
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man at laptop trying to carry out a pension scamBeat the pension scammers, don’t become a victim of illegal pension activities.

Your pension is one of your most valuable assets, and for many it offers financial security throughout retirement and the rest of their lives. But, like anything valuable, your pension can become the target for illegal activities, scams or inappropriate and high-risk investments.

Fraudsters promise high returns and low risk, but in reality, pension savers who are scammed can be less with nothing. When savers realise they’ve been scammed, it can be devastating – many lose their life savings. Once the money is gone, it’s almost impossible to get it back.

How pension scams work

Anyone can be the victim of a pension scam, no matter how savvy they think they are. It’s important that everyone can spot the warning signs.

Scammers try to persuade pension savers to transfer their entire pension savings, or to release funds from it, by making attractive-sounding promises they have no intention of keeping.

The pension money is often invested in unusual, high-risk investments like:

  • Overseas property and hotels
  • Renewable energy bonds
  • Forestry
  • Parking
  • Storage units

Or it can be simply stolen outright.

Warning signs of a pension scam

Scammers often cold call people via phone, email or text – this is illegal, and a likely sign of a scam. They often advertise online and can have websites that look official or government-backed.

Other common signs of pension scams:

  • Being approached out of the blue: by text, phone call, email or at your front door
  • Phrases used like ‘free pension review‘, ‘pension liberation‘, ‘loan’, ‘legal loopholes‘, ‘savings advance‘, ‘one-o# investment‘, ‘cashback‘, ‘government initiatives’
  • Recommendations of transferring your money into a single overseas investment, with returns of 8% or higher
  • Guarantees they can get better returns on pension savings
  • Help to release cash from a pension before the age of 55, with no mention of the HM Revenue & Customs (HMRC) tax bill that can arise
  • High-pressure sales tactics-time limited offers to get the best deal; using couriers to send documents, who wait until they’re signed
  • Unusual high-risk investments, which tend to be overseas, unregulated, with no consumer protections
  • Complicated investment structures
  • Long-term pension investments – which often mean people who transfer in do not realise something is wrong for a number of years
  • Claims that they are from a legitimate organisation like ours, the Pension Service, Pension Wise
  • Visits from a courier or personal representative to pressure you to sign paperwork and speed up your transfer
  • There may be an authentic-looking website, but these can be cloned from legitimate organisations
  • There will be little or nothing in the way of contact names, addresses or phone numbers

Scams can take many forms

Many scammers persuade savers to transfer their money into single member occupational schemes, or other occupational pension schemes. It’s good to remember that pension scams can take many forms and usually appear to most to be a legitimate investment opportunity. What to do if you think you’ve been or are being scammed If you think you might have already been targeted and you’ve agreed to transfer your pension, you should:

  1. Contact your pension provider immediately – they may be able to stop the transfer if it has not already gone through.
  2. Contact Action Fraud on 0300 123 2040 and report the scam.

If you need any further help or guidance on how to beat the pension scammers, please get in touch!

Find Your Local Adviser
Older man enjoying skiing in a bright orange jacket after not exceeding his lifetime allowance

Take it to the Max

 560 315 Jess Easby
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Older man enjoying skiing in a bright orange jacket after not exceeding his lifetime allowance

Feel confident about your retirement!

If you’ve been diligently saving into a pension throughout your working life, you should be entitled to feel confident about your retirement. But, unfortunately, the best savers sometimes find themselves inadvertently breaching their pension lifetime allowance (LTA) and being charged an additional tax that erodes their savings.

If you are a high-income earner or wealthy individual, you could be putting too much into your lifetime pension and risk exceeding the pension lifetime allowance.

The government will maintain the pensions Lifetime Allowance at its current level until April 2026, removing the usual annual incremental rises.

The following questions and answers are intended to help you avoid this tax charge.

Q: What is the lifetime allowance?

A: The LTA is a limit on the amount you can withdraw in pension benefits in your lifetime before you trigger an additional tax charge. By pension benefits, we mean money you receive from your pension in any form, whether that’s a lump sum, a flexible income, an annuity income or through any other method.

This allowance applies to your total pension savings, which may be in different pensions.

Q: How much is the allowance?

A: In the 2021/22 tax year, the LTA is £1,073,100. This allowance has now been frozen until April 2026.

Q: What happens if you exceed the allowance?

A: Once you have received your full LTA in pension benefits, you will be required to pay an additional tax charge on any further benefits you receive.

If you take your remaining benefits as a lump sum, you’ll pay a tax charge of 55%. If you take your remaining benefits as multiple withdrawals, you’ll pay a tax charge of 25% on each one.

Q: How is the usage of your lifetime allowance measured?

A: Each time you access your pension benefits (for example, by purchasing an annuity, receiving a lump sum or establishing a flexible income), this is recorded as a ‘benefit crystallisation event’. There is an additional benefit crystallisation event when you turn 75, and finally, upon your death.

Q: Is lifetime allowance protection available?

A: You can only protect your pension from the LTA if your savings were worth more than £1 million on 5 April 2016. You may be able to protect your pension savings up to £1.25 million, or up to the value of your pension on that date, depending on the type of protection you have.

Q: Is it possible to avoid the lifetime allowance?

A: If you do not have LTA protection and you are approaching the limit, there are various actions you can consider. These include stopping your contributions (and, instead, investing your money into an alternative tax-efficient environment), changing your investment strategy or starting retirement earlier.

Q: Who does the allowance affect most?

A: The LTA affects high earners and those approaching retirement age the most, including those with defined benefit pensions. As the value of high earners’ pensions rises over the next five years towards a lifetime limit that will remain fixed, more and more individuals may find they need to stop contributing to avoid breaching the limit.

Q: When should you seek professional advice?

A: The rules around the LTA are very complex and making the right decisions can feel difficult. Receiving professional financial advice will help to identify if you have a problem and offer different solutions to consider, based on a full review of your unique circumstances.

For more information on information regarding the Lifetime ISA, please get in touch!

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Retirement Options

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What can you do with your pension pot?

When the time comes to access your pension, you’ll need to choose which method you use to do so, with options including: buying an annuity, taking income through (flexi-access) drawdown, withdrawing lump sums or a combination of all of them.

There are advantages and disadvantages to each method, and in some cases your decision is permanent, so it’s important to ensure that you obtain professional financial advice when considering your different options.

This is a complex calculation that must take into account the growth rate your investments might achieve, the eroding effects of inflation on your savings, and how long your savings will need to last.

Annuities – guaranteed income for life

Annuities enable you to exchange your pension pot for a guaranteed income for life. They were once the most common pension option to fund retirement. But changes to the pension freedom rules have given savers increased flexibility.

You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into a taxable income for life – an annuity. There are different lifetime annuity options and features to choose from that affect how much income you may receive. You can also choose to provide an income for life for a dependent or other beneficiary after you die.

Flexible retirement income – pension drawdown

When it comes to assessing pension options, flexibility is the main attraction offered by income drawdown plans, which allow you to access your money while leaving it invested, meaning your funds can continue to grow.

This option normally means you take up to 25% of your pension pot, or of the amount you allocate for drawdown, as a tax-free lump sum, then reinvest the rest into funds designed to provide you with a regular taxable income.

You set the income you want, though this might be adjusted periodically depending on the performance of your investments. You need to manage your investments carefully because, unlike a lifetime annuity, your income isn’t guaranteed for life.

Small cash sum withdrawals – tax-free

This is an important consideration for those weighing up pension options at age 55, the earliest age at which you can take up to 25% of your pension pot tax-free. You should ask yourself whether you really need the money now. If you can afford to leave it invested until you need it then it has the opportunity to grow further.

For each cash withdrawal, the remaining counts as taxable income and there could be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year. With this option your pension pot isn’t re-invested into new funds specifically chosen to pay you a regular income and it won’t provide for a dependant after you die.

There are also more tax implications to consider than with the previous two options. So, if you can, it may make more sense to leave it to grow so you can enjoy a larger tax-free amount in years to come. Remember, you don’t have to take it all at once – you can take it in several smaller amounts if you prefer.

Combination – mix and match

Of all the pension options, if appropriate to your particular situation, it may suit you better to combine those mentioned above. You might want to use some of your savings to buy an annuity to
cover the essentials (rent, mortgage or household bills), with the rest placed in an income drawdown scheme that allows you to decide how much you can afford to withdraw and when.

Alternatively, you might want more flexibility in the early years of retirement, and more security in the later years. If that is the case, this may be a good reason to delay buying an annuity until later in life.

The value of retirement planning advice

There will be a number of questions you will need answers to before deciding how to use your pension savings to provide you with an income. These include:

  • How much income will each of my withdrawals provide me with over time?
  • Which withdrawal option will best suit my specific needs?
  • How much money can I safely withdraw if I choose flexi-access drawdown?
  • How should my savings be invested to provide the income I need?
  • How can I make sure I don’t end up with a large tax bill?

How much are you saving for your retirement?

We can advise on your retirement planning, whether you are in the process of building your pension pot or getting ready to retire. Working closely with you, we will identify what you want from  your pension and develop a structure that meets your requirements. To find out more, contact us to discuss your options.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2021). 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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options are retirement. Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.
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