People are living longer than ever before and are in better health so may not want to stop working at the traditional age of 65.
Different retirement journeys mean that a variety of income sources are required. A blended approach utilising all available assets to generate income may be needed as opposed to just a traditional annuity alone.
The number of retirees with a defined benefit pension scheme is rapidly declining meaning that many people who are now beginning to think about their retirement will benefit from taking tailored financial advice for their individual circumstances.
The impact of Pension Freedoms
The Pension Freedoms introduced by the government in 2015 gave retirees more flexibility with regards to taking their income at retirement. However, many people do not fully understand the options available to them and therefore end up paying more tax than necessary by taking their income in a certain way.
The Financial Conduct Authority (FCA) found that 375,500 pension pots were fully withdrawn from April 2019 to March 2020 (FCA, 2020). Fully encashing your pension pot will mean that you could potentially be pushed into a higher income bracket in that tax year. If the full value of your pension is not needed immediately, you could withdraw income over time and stay in a lower tax bracket. You also lose the potential tax-efficient growth in your pension wrapper by encashing the entire pension. If you only withdraw what you need to spend each month, you can leave the rest of your pension invested to hopefully grow in value over time.
Increasing life expectancy
Life expectancy is increasing. The state pension age increased from 65 to 66 years old in 2020 and is expected to reach 67 by 2028. This means that pensions need to last longer as many individuals spend over 20 years in retirement.
Your pension pot will need to withstand market volatility, drawdown and possible additional expenses such as care fees.
In 2019 survey by Aviva found that 8.9 million employees aged over 45 do not know how much they need to save to have a comfortable retirement. 5.1 million do not know how much they have already saved into a pension*. Complacency around pension savings is likely to result in a shortfall of income at retirement particularly as income is likely to be needed for many years.
Get your retirement on track
At Four Wealth Management, we offer a no-obligation meeting with one of our experienced financial advisers to discuss retirement planning and to look at your existing pension arrangements.
Your financial adviser can then assess if your existing pensions and underlying investments and suitable for your individual circumstances and if you are on track to retire when you would like to.
They can recommend how much you need to be saving into your pension each month to achieve a comfortable retirement.
*Aviva, 2019, ‘Nine million UK mid-life employees flying blind into retirement’
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.