At retirement planning

Deciding how you are going to take your retirement income is probably one of the most important decisions you will need to make.

Following the introduction of the Government’s new pension freedoms, it’s important that you take the time to look into all of the options available to you. There will be lots of different factors to consider, so it’s important that you do your research and also seek advice from your financial adviser or receive free guidance from the Pension Wise service.

For further information on the new pension freedoms, visit the Pension Wise website >

How much will I get in retirement?

Your pension provider should write to you annually and also in the lead up to your retirement date with details of your pension forecast. Once you know the value of your pension fund, you can then look at which option(s) will provide you with the best retirement income.

Most people choose to buy a lifetime annuity with their pension savings which provides them with a guaranteed income for the rest of their lives. It pays to get it right – shopping around for the best annuity rate can boost your income by 20% or more, and once you’ve bought a lifetime annuity you generally can’t change it.

Some people who prefer more flexibility and are willing to take more investment risk with their pension pot, may choose income drawdown. This means that you can take an income from your pension pot while the rest of the money stays invested. This option allows you to be more flexible with how much income you take, but it also means that your pension pot may not last for the full length of your retirement.

The new pension freedoms allow you to take the value of your pension fund as a lump sum which leaves it up to you as to how quickly you spend it and what you spend it on.But there are tax consequences to consider with this route, so take advice if you are not sure.

In addition to your pension pot, you should also consider what other sources of income you have, including any State Pension, other savings, investments or assets. 

What do I need to look for?

You should consider carefully what type of income you will require:

  • Do you want your income to increase yearly to help to counter the effect of inflation?
  • Do you want the income to continue until you die?
  • Do you have a spouse who you would like the income to continue being paid to if you die?
  • Do you suffer from poor health?
  • Will you take a tax free cash lump sum from your whole pension pot before buying your annuity?
  • Do you want to draw an income but leave the rest invested?
  • Do you want a guaranteed income for life or are you open to some investment performance risk?

Your answers to the above questions can considerably change the amount of income you could receive and will vary between different product providers.

Where can I get some help and more information?

In conjunction with the new pension freedoms, the Government has launched a free and impartial service called Pension Wise which will help you understand what your options are and how to make sure you get the best deal. This includes receiving free face-to-face guidance through the Citizen’s Advice Bureau.

Find out more about Pension Wise>

For further reading, you may also like to visit The Pensions Advisory Service website as well as the Money Advice Service.

For personal, professional advice you may find it useful to speak with a financial adviser. They can help you through the entire retirement planning process and make recommendations to help ensure you receive the best possible retirement outcome.

New Pension Rules

As of April 2015, you now have the option to take your entire pension pot as one lump sum to spend as you wish. Whilst this may seem appealing, it’s important to remember that only 25% is tax-free – you will have to pay tax on the other 75%.

You can find out more about the new rules and how they may affect you here »

Further information

The Money Advice Service has a very comprehensive section about pensions and retirement. You will be able to find a lot of information about different annuities, tax free cash lump sums, rules and regulations and a retirement checklist.

You can find more information about the State Pension and get your online statement here »

The Pensions Advisory Service offers a wealth of information about your options at retirement and they also provide a free telephone service to offer support and guidance.

The Citizens Advice Bureau provides a large amount of free information and resources to help you with your pension. They are also responsible for delivering the new pension guidance as part of the Government’s pension freedom reforms.

Getting Financial Advice

Professional financial advice could help you with your retirement planning, tailored to your individual circumstances – you can search for an adviser local to you here »

Your adviser will look at your entire financial circumstances and recommend a plan of action to achieve your individual goals.

Find out more about financial advice, what to expect and how much it will cost here »