Pension planning has two distinct phases;
- saving for retirement sometimes known as accumulation
- spending in retirement sometimes known as decumulation
When planning for retirement it is important to understand that in future the state is likely to only provide a minimal amount of support. The new workplace pensions will go some way towards providing a little extra but you will suffer a substantial reduction in income if you don’t make some additional provision.
The starting point is to work out:
- How much you will need (for essentials)
- How much you would like (for lifestyle)
- When you expect to need it (retire)
- When you would like to have it (in an ideal world)
We can help you to assess any shortfall between state and workplace pensions and both (3) and (4) above and advise on the most appropriate and tax efficient way to save based on your individual circumstances.
There are a number of methods for saving for retirement income including:
- Individual Savings Accounts (ISA)
- General Investment accounts
- Onshore and offshore investment bonds
- Venture capital Trusts (VCT) and Enterprise Investment Schemes(EIS)
Each has its own tax regime with its own annual and, sometimes, lifetime limits.
Frozen, Paid Up, or Preserved Pensions
Many people have old ‘frozen’ pension plans that can suffer from poor performance and high charges. Our experience of reviewing existing personal plans has shown that approximately 85% of people would be better off by switching to a modern plan and 15% would be better off by staying with their existing plan.
Some of these plans have valuable guarantees that we can help you to understand before making any decision on an existing pension plan.
We are authorised to advise you on any Defined Benefit (Final Salary) pension schemes that you may have and their ongoing suitability.
When thinking of income in retirement most people think of pensions. However, other savings and investments can have an impact on tax-efficiency of retirement income. For some people where most of their wealth is tied up in their home Equity Release can be a suitable solution.
Following the changes in April 2015 you have more options and flexibility on how you take income from your pension(s). This means that when you decide to stop working (or slow down a bit) you have many alternatives. Unfortunately increased choice brings increased complexity.
Sometimes the decisions you make will be irrevocable so it is important that you consider all the available alternatives. If you just accept what is on offer from your existing pension scheme it could cost you a lot of money over your lifetime. This is true of both company and personal pensions. On the other hand if you arrange to move the money to an alternative scheme you could lose valuable guarantees.
We can help you to assess:
- How much tax-free cash you need
- When you need it – all at once or over a period of time
- How much income you need
- Do you want flexibility or a guaranteed amount each month or a mix of both
- Are there health issues that could affect your decisions
- Could your needs change in the future
- Your current and future tax position
- Would you like to pass your pension down the generations to your children, grandchildren, and on.
After assessing your needs and discussing your options we can help you implement a plan that can consist of one or more of the following:
- tax-free cash
- guaranteed annuity
- flexible annuity
- enhanced annuity
- flexi-access drawdown
- uncrystallised fund pension lump sum
- use of other investments for tax efficiency
- equity release
You may have a large amount of capital tied up in your family home whilst having insufficient income or needing money for a specific purpose. This is known as being "asset rich, income poor". There are a wide variety of reasons why you may want to release equity from your home.
- You may want to increase your regular income.
- You may need to make an expensive repair to your home.
- You may need to purchase a new car
- You may want to take a "holiday of a lifetime"
- You may want to help a family member purchase a home
- Your family may have a potential Inheritance Tax liability
We can guide you through your options and help you to understand their advantages, disadvantages, the impact on potential state benefits, and the effect on how much your children could inherit. Your options can include:
- Local Authority Grants
- Borrowing from relatives
- Lifetime Mortgage
- Home Reversion
An increase in savings or income could reduce your eligibility for means tested state support.