You might want to think about consolidating these into one pension plan so that things are easier to manage, or to reduce the charges you are paying on some of your schemes.
After all, you might have another 10 or 20 years to go before your start taking your pension benefits, and having them in one place could make everything more straightforward. Check for exit fees first though, as these could mean it isn’t worthwhile moving.
Advice or self investment?
If you’re comfortable looking after your money yourself, then one option you might want to think about is a Self-Invested Personal Pension (SIPP), but remember with this option it is down to you to choose the right investments to fund your retirement and take the right level of risk.
If you’d rather leave things to the experts, then you should seek professional pension advice as to the best route to take. If you’d like to speak to one of our advisers then please pop us a call on 02084327333.
Remember that if you have a final salary scheme, it rarely makes sense to transfer to another type of pension, as it could mean giving up potentially generous guaranteed benefits. A specialist pension transfer adviser can talk you through your options.
If you are unsure of the location of all your pensions you can use the Governments Pension Tracing Service here and you can gain an estimate of your State Pension here. Alternatively, please contact us and we can find out this information for you.
2. Think about how long your pension will need to last for
None of us knows exactly how long we’re going to live for, but it’s important to give careful thought to how long you might need your pension savings to last (male and female life expectancy is currently 78.9 and 82.7 respectively, but these are rising and depend heavily on individual factors like where you live and whether you smoke).
Think about when you want to stop work, and try to work out roughly how much income you’ll need every year after that.
If you’re worried you haven’t yet saved enough for retirement, then you might want to work for longer, only dipping into your fund occasionally, or not touching it at all until you fully retire.
3. Decide how you want to take your pension
If you’re planning to stop work in a few years, but are concerned about running out of money too quickly, then you may want to consider ways to use your pension to provide a regular income.
Before the pension reforms were introduced, most people used their pension to buy an annuity, or income for life.
In a low interest rate environment some viewed these as poor value for money, although they do provide valuable peace of mind that you won’t outlive your savings, so may still be the right option for some.
There are lots of different kinds of annuities available, and rates can vary widely, so it’s important to seek advice if you aren’t sure which the best option is for you.
You might be able to get a higher annuity income if you have any kind of medical condition, such as high blood pressure or diabetes.
If you don’t want to buy an annuity, or want to use only part of your pension to buy one, you also have the option to draw money from your pension whenever you want, to provide you with a flexible income.
You can either do this by investing your pension pot into what is known as a ‘flexi-access drawdown fund’, or you can leave your money in your pension and simply take small sums from your pot when you need them.
If you opt for flexi-access drawdown, you can take 25% as a tax-free lump sum from your pension in one go. You will have to decide where your money is invested – an adviser can help discuss the various options.
If you take smaller cash sums direct from your pension, you can’t take the whole 25% lump sum in one, but 25% of each withdrawal you make is tax-free.
4. Calculate how much tax you’ll pay
The new pension freedoms mean that once you reach the age of 55, you can take money out of your pension whenever you want.
However, dipping into your pension too regularly could land you with an unexpected tax bill, so it’s important to understand how much tax you must pay on any withdrawals.
If you want to take the whole of your pension as a lump sum, a maximum of 25% of this will be tax-free. The remaining 75% will be taxed at your marginal rate of income tax. This is whatever tax band you fall into after all your income, including pension withdrawals, has been factored in.
If you want to take money out of your pension slowly, then the first 25% of each withdrawal you make will be tax-free, and the rest will again be taxed at your marginal income tax rate.
You might therefore want to withdraw your pension slowly over a period of several years rather than taking big lump sums out to avoid falling into a higher tax threshold; after all, for higher rate taxpayers this could be 40% of the pension money you take out!
5. Beware scams!
While the new 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 well be offered investments which promise incredible returns but the golden rule is that if looks too good to be true then it usually is.
Never give your pension details to cold callers, and 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 it is legitimate.
You should only seek advice from companies authorised and regulated by the FCA. You can check to see if a firm is registered with the FCA here, where you’ll find Drewberry Wealth listed.
If you are ever unsure it is best to consult an expert and speak to a professional pensions adviser, they will be able to advise you on what is best for you based on your personal circumstances. If you would like to discuss your pension options with one of our pension experts you can contact us directly on 020 8432 7333.