Using your pension for your retirement

In an ideal world we believe that people should be preparing and thinking about their retirement way before they actually do.

You’ve worked hard to build up some pension savings, which let’s face it, aren’t the most exciting of things to deal with. However, what they can do is help you achieve the retirement you want and by making the right decisions on how best to use them, taking retirement planning advice can be a crucial step towards meeting your goals.

If you’re not quite ready to retire, but want to know more about how to boost your pension in the run up to retirement, then read our section on How to boost your pension in the run-up to retirement.

Pension Freedoms - What are my retirement options?

The pension landscape changed dramatically on 6 April 2015 and currently offers you, if aged 55 and over, significantly greater flexibility when accessing your pension funds.

There is no longer a requirement to buy an annuity and the range of choices now available can be bewildering. Great care should be taken, as the decisions you make now could affect your standard of living for the rest of your life.

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Using your pension for your retirement – your options

Under the new rules, you now have more flexibility and can use a range of options to suit your circumstances, and we’ve summarised the main ones below. However, it might be worth considering delaying taking your pensions if you don’t really need them. This could be because you will continue to work in some capacity, or have other income from savings and investments. As you can see from our section about boosting your pensions taking the chance to consolidate where appropriate, and perhaps make some additional contributions in the later years, you could build up a greater pension pot for use at a later date. These are just some of the things to discuss with our retirement experts who can provide you with long term, impartial advice and guidance on making the right choices for your retirement.

There are different ways to set these up, including a tax free lump sum at the outset, spouses pensions and other guarantees to suit your needs, essentially though, this is a retirement product that allows you to swap some, or all of your pension savings for a regular income (which is taxable), that’s guaranteed for your life. Unlike some of the other options, you don’t need to review how much to withdraw or what the stock markets are doing, as the income is secure no matter what happens with them.

Drawdown is one of the most flexible ways to access your pension, currently available from age 55. You can usually take up to 25% as a tax-free cash lump sum and keep the rest invested for later. You’re in control of how much income you take (which is taxable) and can make withdrawals whenever you want to. Unlike an annuity, the income isn’t guaranteed and the investments will need to be managed. With this option there is however a risk that the income could ultimately cease if your retirement funds run out.

Some employers offer a scheme pension, and these can vary from those which provide a guaranteed income, to ones whereby you get more flexibility but the risks to you are greater. We’ve seen countless different variations of these over the years, and you’d be wise to check with your employer or provider about what you can and can’t do before and during retirement. Our retirement experts are perfectly placed to guide you through this.

This may sound attractive, and could be useful in certain situations i.e. where a pension pot value is very small. However, there are a few risks associated with taking cash withdrawals from your pension, or taking it all and closing the plan down. One of the biggest is the risk that you could be landed with a large tax bill, which can be reduced or avoided altogether with the right decision making. This is definitely an area where financial advice and sound retirement planning guidance can help.

You can of course choose to use more than one of these options as part of a robust, long-term plan to meet your goals. This could be essential to meet both your income and capital needs throughout all stages of your retirement, and to balance any requirements for guarantees versus flexibility. We realise that everyone is different and with unique ambitions and goals. That’s why, as part of our financial planning process, your retirement specialist will work with you to draw up a bespoke, tailored financial plan to meet your goals, and to enable you to enjoy the retirement lifestyle you want.

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