Top 5 Pension Tips For Over 55s

2 :: Grow Your Pension Pot

In the Drewberry 2017 Wealth & Protection Survey, it was found that 1 in 3 people contribute less than 5% of their income to their pension and 1 in 10 don’t contribute anything at all.

21.9% of Britons in the Drewberry survey had a pension worth less than £10,000, which has little chance of sustaining a retiree for very long. That’s why you should regularly check up on your pension savings and increase contributions if you need to while you’ve still got time.

Make The Most Of Pension Tax Relief

Paying into a pension offers tax relief at your highest marginal rate. With each contribution you make to your pension savings, you will automatically receive basic rate tax relief at 20%. This means that if you add £80 to your pension savings, HMRC will add another £20 for a total gross contribution of £100.

If you are a higher rate taxpayer, you will receive tax relief at a rate of 40% and if you are an additional rate taxpayer will receive tax relief at a rate of 45%.

However, you will not receive the money automatically, like a basic rate taxpayer would. Instead, you will have to reclaim it yourself using a self-assessment tax form. Don’t forget to do this — after all, it’s your cash!

Do You Need To Postpone Retirement?

If your pension isn’t all that you hoped for, you might have to postpone retirement to be able to afford to live in your older age.

By staying in employment for a while longer, you can continue to add to your pension savings as well as reduce the time that you need to use your pension savings.

Once you’ve retired and start drawing on your pension, you have a £10,000 upper limit on the amount you can pay into your pension each year and still receive tax relief. This is known as the money purchase annual allowance.

This means you can pay less into your pension after retiring, so it may make sense to work for a little longer to maximise the time you’re contributing to your pension and therefore retire with the largest pension pot possible.

You can also stretch your retirement funds by deferring your state pension. By not claiming your state pension when you reach your retirement age, you can earn higher weekly payments when you do decide to claim it.

The boost your pension will receive by deferring it depends on the year in which you reached retirement age.

If you reached retirement age before April 2016, you can receive a pension increase of 1% for every 5 weeks you defer. If you reached retirement age after April 2016, you will receive an increase for every 9 weeks that you defer.

3 :: Calculate The Cost Of Retirement

How much money will you need in retirement? Many people enter into retirement with a plan for their wealth. This may include investing in hobbies, travelling or sharing their wealth with their friends or loved ones.

These are things that need to be considered when you’re thinking about how much you need to save for your retirement. Will you be able to afford the retirement you’re hoping for?

It’s essential to know how much money you’ll need as well as how much you’ve got in pension savings. If you’re approaching retirement and it turns out your pension savings won’t provide you with the income you hoped, saving more should be a priority.

How Long Will You Need Your Pension For?

We’re all living for longer, so retirees face the challenge of having to stretch their pensions and save more to ensure that their savings will last them through their retirement.

While none of us can say exactly how long we’re going to live, it’s important that you think seriously about how long you might need to rely on your pension. It could be much longer than you think!

Can Your Pension Pot Handle A Rainy Day?

As a result of rising life expectancy, retirees are now more likely to run into unexpected financial difficulties during their retirement, such as the need for long-term care. You may not be able to stay in your own home, so where owner-occupiers tend to believe their housing costs will be minimal in old age this may not be the case if you need to move into care.

How Are Pensions Taxed?

Tax can sneak up on you and bite a chunk out of you pension savings if you’re not careful. New pension freedoms allow you to start taking money out of your defined contribution pension once you reach the age of 55.

However, dipping into your pension too frequently and this early could land you with an unexpected tax bill. That’s why it’s important that you understand how your pension is taxed.

When you begin withdrawing a defined contribution pension, you have the option to take 25% of your pension pot as a tax-free lump sum.

If you’re using income drawdown, once you’ve taken that 25%, the rest of your pension savings will be subject to tax at your marginal rate of income tax. Your marginal rate is whatever tax band you fall into after all your income, including pension withdrawals, has been factored in.

On the other hand, you can choose to draw down your pension gradually in chunks. In this case, the first 25% of each chunk will be tax-free.

Lifetime Allowance Charge

If you have a sizeable pension, there is a chance that you will breach the Lifetime Allowance, which limits how much you can receive from your pension without paying additional tax. If you exceed this set amount, then your pension will be subject to a Lifetime Allowance Charge.

The Pension Lifetime Allowance currently stands at £1,073,100. If you have already breached the Lifetime Allowance or you are concerned you are getting close you should speak to a financial adviser to ensure you are doing what you can to manage this potential tax charge.

4:: How Will You Take Your Pension?

Thanks to pension freedoms introduced in 2015, flexi-access drawdown is now an option for all pensioners. Here your pension can remain invested after you retire and therefore has the potential for investment growth. This is compared to an annuity, most of which aren’t linked to investment performance.

Is Pension Income Drawdown Right For You?

While annuities provide valuable peace of mind that you won’t outlive your savings, some people may prefer the additional flexibility that comes with drawdown.

However, before you jump into a decision, it is important that you are aware of the risks of investing your pension. While it is possible to reap rewards from pension drawdown, you will be taking on the risks of investing and there is a chance that your drawdown fund will run out if you withdraw too often or take too much.

Unlike annuities, which require little effort in terms of management, drawing down your pension requires you to keep an eye on funds in order to ensure your pension doesn’t run out. You’ll need to make smart investment decisions and monitor your drawdown fund carefully.

Should You Choose An Annuity?

If you don’t feel comfortable with taking on the investment risk yourself with income drawdown, then you may want to consider an annuity pension.

A retirement annuity involves a contract between you and an insurance company for you to receive regular income until your death in exchange for your retirement savings.

Your retirement savings will never be at risk with most annuities (the exception is if you choose an investment-linked annuity, and even these tend to have minimum income guarantees). You also may be able to get an enhanced annuity if you’re in poor health or a smoker, increasing your pension income.

You cannot change your mind after purchasing an annuity. They are a life-long commitment and cannot be altered or swapped, and this inflexibility is one of the reasons why annuities have not always had a good reputation.

Choosing between annuity or drawdown is a big decision, so take your time to think about it and consider speaking to a professional pension adviser. Remember, an annuity is an irreversible decision, so you need to be certain is the best pension for you.

5 :: Beware Of Pension Scams

While the 2015 pension freedoms give you much greater control over your retirement savings, they also create plenty of opportunities for fraudsters to try to part you from your cash. You may be offered investment opportunities, free pension reviews, or be contacted by someone claiming to be from the government.

Scams come in all shapes and sizes, which is why you need to be careful with your pensions and take care that your savings don’t fall into the wrong hands.

Look out for the following signs of a pension scam:

• Scammers tend to offer what they’ll call “low risk high reward investment opportunities” with “guaranteed returns” which often seem too good to be true. That’s because they usually are!
• Be wary if you are contacted by a cold caller with an investment opportunity. The UK government has banned pension callers asking for people to invest their pensions due to the number of cold callers scamming people out of their pension savings.
• Scammers will often try to rush you through a decision to prevent you from thinking too deeply about the offer. That’s why fraudsters often place a time limit on their offer or pressure you into making a fast decision with persistent calls and emails.
• If you can’t find any information on the company that have contacted you (including their website, contact information, address, or any media coverage or reviews of the company) then they might not be a legitimate company.

If you’re in any doubt that an investment could be a scam, check with the city regulator the Financial Conduct Authority to see if the company contacting you is legitimate.

The FCA register of legitimate companies is a list of all of the companies that comply with FCA regulations and you can use it to check for the name of the company who contacted you. 

Your Financial Plan – Build A Better Future

A good financial plan can help you make the right decisions when it comes to your finances. Make the right decisions today to build a more prosperous future.

Good financial planning with clear goals can increase your retirement income by as much as 53%. Old Mutual Redefining Retirement Survey

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