5 pension tips for retirement
Work to a plan
It is always a good idea to have a sound plan for your finances but this is especially true at retirement. A plan allows you to avoid over or under spending today and to maximise your enjoyment of life. It also helps to reduce stress. For me there is another benefit of a plan that doesn’t get enough attention – it helps make you more money! Studies prove that having a plan makes it more likely you will achieve your goals and if the plan is provided by a financial adviser the average investor will accumulate a bigger retirement pot.
How should you take your income once you are retired
There are so many choices at retirement and a great deal of misinformation about what to do from the internet and maybe even friends and family. Making the right decision isn’t easy but there are some facts that help. At its most basic an investor can choose two options for private pensions. You can choose to convert into an annuity at retirement where you will receive a guaranteed income for life or you can stay invested in your own pension and take income in a more flexible way and hope for better long-term returns. This sounds like a simple choice but the variety of options is very wide. Do your research before deciding. For those lucky enough, defined benefit pensions are a wonderful perk but now there is the option of transferring out into your own personal pension, and with the values so high by historical standards, there are difficult decisions to be made here too.
Lets avoid mistakes
As an adviser we see people approaching retirement every day. I’m sad to say that a large number of these people would make costly errors in their planning without support. The UK investment landscape is complicated and product rules are often opaque and hidden behind jargon which doesn’t help. You must be careful before selling any investment and you have to ensure you don’t create a tax liability or lose out on a benefit you’ve already paid for. You won’t get warned before you act and the onus is on you to know your position. This may sound bad but in my experience the biggest complication is the investment tax system where it is so easy to make mistakes. Pension tax legislation is greatly beneficial but as the cost to the Treasury is so high the Government changes the rules every year.
Look out for opportunities
Luckily, alongside the danger of making mistakes, the complexity of our investment and tax system will throw up opportunities to get benefits if you know the rules. One example that hardly anyone seems to know about is that if you are retired and in receipt of income from your pension you are actually still able to make contributions. This is true even if you are don’t earn much or anything at all. You can still receive 20% tax relief up to an annual limit of £3,600 gross. This means a payment of £2,880 to which the taxman adds £720. Where else can you get £720 a year of return from the tax man for so little effort?
Re-fresh your plan regularly. Rules change for products or tax legislation and your personal circumstances can change too. It is important that you adapt your plans to whatever the changes are and make sure you make the right trade-offs between spending and retaining investments and that you don’t make any mistakes.
FOR FURTHER INFORMATION
Reader’s Digest has partnered with pension experts Flying Colours, to provide you with the advice you need to identify your best option. Call our pension experts on 0333 241 9919 or visit RD Pensions to access the appropriate advice.