Retirement Planning

Sometimes it’s hard to know where to start, that’s where we can help.

Ask your self these simple questions,

Pension Planning is one of the most important areas of your finances to consider, unfortunately, most people do not review their plans and obtain pension advice until it is too late or not at all.

With people living longer and having higher expectations of what retirement will look like it is imperative that you begin planning for your retirement and get some retirement planning advice as soon as possible.

As Independent Financial Advisers here at Foxgrove Associates, we will explore the options available to you and make the most suitable recommendation to suit your needs and budget.

Keeping track of your retirement savings isn’t always easy, especially if you’ve joined several schemes over the years. Consolidating pensions into one place could make things easier to manage.

Many of us work for several different employers during our working lives, often joining our company’s workplace pension scheme each time. According to the Department for Work and Pensions (DWP), on average each of us works for 11 different employers during our lifetime. That could mean an awful lot of pensions paperwork to stay on top of.

If you’re struggling to manage multiple pension pots and aren’t sure whether your money is working as hard as it possibly can for you, pension consolidation could be an option worth exploring.

If you’re thinking of combining pensions, there are several things you’ll need to consider first. A good starting point is to check which types of pensions you have. For example, if any of your pensions are defined benefit pensions otherwise known as final salary pensions, these offer valuable guaranteed benefits which are usually worth hanging on to.

Defined benefit pensions pay you a guaranteed income at retirement that will keep pace with rising living costs, and the amount you’ll get is dependent on the number of years you’ve been a member of the scheme and a proportion of your final year’s pay, or your average salary. Transferring away from this type of pension is rarely in your best interests, so you should always seek professional independent advice if it’s something you’re thinking about doing.

Combining defined contribution or money purchase pensions is usually more straightforward, but it’s still worth seeking independent financial advice to make sure it’s the best option for you. Again, you don’t want to give up any important benefits. With these types of pensions, the amount you’ll end up with at retirement depends on the amount of the contributions, and how the investments held within these schemes have performed over the years.

Often older pensions have higher charges, so you may be able to save money by transferring your pension to a new cheaper plan. If the fees you’re paying are over 1%, you’re almost certainly paying more than you need to. Newer pensions often charge combined platform and fund fees of 0.5% or less depending on how they are invested, which enables you to retain more of the growth as its not been eaten up by higher charges.  It’s not all about the charges though, you should also look at your pension fund’s performance. If some funds have performed much better than others you may be better off switching, this is where we can help you make those critical decisions.

With the many pension products available choosing the right pension plan can be like navigating a minefield. But don’t worry as your independent financial advisers we are here to help guide you through this maze and ensure that you make the correct decisions in respect of your current pension needs and future aspirations. Don’t put it off until tomorrow, contact us today for some independent pension advice.

When you finally reach retirement age, the financial decisions you make now could effect you for the remainder of your life time, it is imperative that you seek independent advice to ensure these decisions are the most appropriate for your needs, circumstances and tax position.

Some of your options may include.

Do nothing – leave your money in your pension schemes and live off your savings

Withdraw some or all of your pension as a cash lump sum

Buy an annuity

Enter into Flexible Access Drawdown

Or a mixture of all of these options

Not that long ago when you reached your retirement age there wasn’t this myriad of choices for your pension. The scheme you were with simply offered you an income for the remainder of your lifetime, this was known as an annuity. However over time people’s needs and circumstances have changed and although annuities have a place in retirement planning many of us felt that they just didn’t offer what we wanted or needed.

The annuity market has drastically changed since early 2000’s, back then the Bank of England base rate was between 4% – 6% and life expectancy for Men was 81 and Women 84. The returns that annuities generally offered were in region of 8%. Fast forward to 2020 and the Bank of England base rate is 0.1% and life expectancy for Men is 84 and Women 86. This has had massive negative impact on annuity rates, with a typical rates around 4.5%. This has lead to a number of our clients feeling that annuities just do not represent good value for money and that they would have to live for 20 years just to get their own money back.

So if people are not buying annuities what are they doing?

Entering into a Flexible Access Drawdown Arrangement. With Flex-access drawdown the money you hold within your pension pot(s) remains invested and you simply withdraw money from the pot. As it is flexible, you can take as much or as little as you want. You can set up a regular withdrawal which can be stopped, increased, decreased and you can take ad hoc lump sums. However as the money is still invested it is not guaranteed, it will go up and down according to market conditions and the money could run out.

You can choose to take up to 25% (a quarter) of your pension pot as a tax-free lump sum. You then move the rest into one or more funds that allow you to take a taxable income at times to suit you. Most people will use it to take a regular income.

You choose funds to invest in that match your income objectives and attitude to risk and set the income you want. The income you receive may be adjusted periodically depending on the performance of your investments.

Once you’ve taken your tax-free lump sum you can start taking the income right away or wait until a later date.

You can also move your pension pot gradually into income drawdown. You can take up to a quarter of each amount you move from your pot tax-free and place the rest into income drawdown, this is known as phased drawdown.

To help provide more certainty, you can at any time use all or part of the funds in your income drawdown to buy an annuity or other type of retirement income product that may offer guarantees about growth and/or income. What’s available in the market will vary at any given time. So we recommend that you seek independent financial advice to help you make the right decision for you.

You need to carefully plan how much income you can afford to take under flexi-access drawdown otherwise there’s a risk you’ll run out of money. This could happen if:

• you take out too much in the early years
• your investments don’t perform as well as you expect and you don’t adjust the amount you take accordingly
• you live longer than you’ve planned for

If you choose flexi-access drawdown, it’s important to regularly review your investments. Unless you’re an experienced investor, you will need our help to ensure your pot remains on track.

Not all pension schemes or providers offer flexi-access drawdown. Even if yours does, it’s important to compare what else is on the market as charges, the choice of funds and flexibility may vary from one provider to another. Using our specialist research tools we will compare your current pension scheme to those available across the whole of the market. This will ensure that you get the most suitable scheme and provider for your circumstances.

Any money you take from your pension pot using income drawdown will be added to your income for the year and taxed at your marginal rate in the normal way. Large withdrawals could push you into a higher tax band so bear this in mind when deciding how much to take and when.

If the value of all of your pension savings is above £1.073.1m when you access your pot (2020-21tax year) further tax charges may apply. Please contact us for more information about the Life Time Allowance and how this affects you.

You can nominate who you’d like to get any money left in your drawdown fund when you die.

• If you die before the age of 75, any money left in your drawdown fund passes tax free to your nominated beneficiary whether they take it as a lump sum or as income. These payments must begin within two years, or the beneficiary will have to pay income tax on them.
• If you die after the age of 75 and your nominated beneficiary takes the money as income or a lump sum, they will pay tax on it in at their marginal rate.

Income drawdown is a complex product. That’s why we will sit down and fully assess your circumstances to ensure whether it’s suitable for you. If it is we will compare what’s on the market and find you the most competitive product. Please get in touch with us today to review your options.