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    Tag: State Pension

    How will you make the most of your pension savings?

    Posted on by Rebecca Campbell

    Saving for your pension is a significant part of your life, and while it may seem like way in the future, the time to access your pension savings often arrives sooner than expected. Building up your pension fund (accumulation) is usually straightforward, but planning how to withdraw that money (decumulation) is sometimes overlooked or only considered at the last minute.

    Very few people have the benefit of a defined benefit or final salary pension, where your income is guaranteed for life. Most of us need to decide when and how to withdraw our pension funds and planning ahead can ensure you’re making the most out of your pension in retirement. The last thing you want is to deplete your savings too quickly after a lifetime of saving.

    HOW SHOULD I PLAN?

    Your plan will vary based on your individual circumstances, and many external factors will need to be considered, some of which are beyond your control. For instance, you can’t accurately predict your life expectancy, market performance, or inflation levels. However, you can plan for how to handle these uncertainties should they arise.

    KEY CONSIDERATIONS

    Where is your money?

    You might have a mix of workplace, private, and state pensions that become accessible at different ages. It’s also essential to know what state pension you are entitled to. Additionally, consider any savings, stock market investments, or rental income you may have. All these should be part of your overall plan.

    When do you want to retire?

    The earlier you retire, the longer your money needs to last. Ensure you have enough funds to support your desired lifestyle, which will influence the realistic age at which you can retire. While predicting life expectancy is challenging, tools and expert advice can help you plan for various scenarios.

    How much retirement income would you like?

    A common guideline is to aim for a retirement income that is two-thirds of your current salary. However, many external factors need to be considered alongside this. Tools are available to estimate what a minimum, moderate, and comfortable retirement might look like for you. Creating a budget based on your current spending can also help.

    How much retirement income do you have?

    While it’s essential to think about your desired retirement lifestyle, it’s equally important to consider the reality of your available retirement income and how long it needs to last. We can help you explore different scenarios to balance your desired income with what’s achievable, based on your individual circumstances.

    How can I structure my retirement income?

    In addition to your state pension, there is an option to secure an annuity with part or all of your retirement fund, providing a guaranteed income for life. Alternatively, or in conjunction with an annuity, you can access your pension flexibly through Flexi Access Drawdown. This allows your funds to remain invested, they can rise or fall in value, with the option to choose how much you withdraw each year. However, you must remain mindful the drawdown pot is exhaustible.

    SUMMARY

    As highlighted above, it’s crucial to review your pension savings and plan their use well in advance. This proactive approach can help you identify any necessary measures to achieve your desired retirement. It also provides peace of mind, ensuring your retirement meets your expectations before it’s too late to make changes.

    At PM+M, we can assist with all these questions by creating a personalised cashflow plan based on your current circumstances and agreed assumptions. A cashflow forecast can help you determine:

    -How much do I need to save?
    -How much does my fund need to grow each year?
    -When do I need to retire?
    -How much can I afford to spend during retirement?
    -What is my income underpin requirement?

    GET IN TOUCH

    For more information or advice on your pension savings and retirement planning, contact our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Where will my income come from when I retire?

    Posted on by Laura Bannan

    When you reach retirement age and no longer work, it’s important to have planned ahead and know exactly where your income is going to come from to enable you to enjoy the retirement lifestyle you would like. The first thing to consider, is the possible sources of income to understand what may work best for you.

    Pension plans

    There are 2 main types of pension which are generally referred to as defined contribution pensions (a pension pot which is based on how much is paid in) and defined benefit pensions (usually a workplace pension based on your salary and how long you’ve worked for your employer). It’s worth remembering that you are able to have several pension plans if you wish.

    With a defined contribution plan, potentially and dependant on various rules, a maximum of £60,000 (or 100% of your earnings, whichever is lowest) might be available to be paid into your pension And tax relief can be obtained. Your money will be invested, so any income you are able to take from the plan when you retire will be partly dictated by a combination of how much you have paid in and investment performance. You would be able to withdraw money from age 55 (changing to 57 from April 2028). 25% of the plan’s value is usually tax-free, with the remaining 75% being taxable at your marginal rate.

    With a defined benefit pension plan, how much you will get would depend on your salary when you retire or leave the scheme. Sometimes it is worked out using your average salary and will also depend on how long you have been part of the scheme for. You would receive a pension income for the rest of your life with a defined benefit plan and the age at which you could start drawing money from your plan would depend on the individual scheme. There could be the possibility to take a tax-free lump sum from a defined benefit plan, or even the option to take your whole plan as a lump sum.

    State pension

    The state pension could potentially make up a large portion of your retirement income but isn’t always enough on its own to fund a retirement lifestyle, depending on your individual requirements.

    Men born on or after 6 April 1951 and women born on or after 6 April 1953 can claim the new State Pension once they reach State Pension age, which is currently 66 but rising to 67 by 2028. The full amount you are able to get is just over £10,600 per year, if you have made the required national insurance contributions.

    Property ownership

    It could be a possibility that some of your retirement income comes from rental income if you are the owner of any buy-to-let properties, and this can be a great source of retirement income. However, it should not be relied on as it is not possible to guarantee that the property will be let out all of the time. You would also be required to pay income tax on any rental income you receive.

    Investment options

    You may want to consider putting your money into medium or long-term investments (five years or more). Unlike savings, investments have more potential to grow over time. You have tax efficient options, for example an ISA.

    At PM+M, we offer a bespoke managed portfolio service (in partnership with AJ Bell) which we continually monitor, conduct ongoing due diligence in funds held in the portfolio and proactively make fund and asset allocation changes when we feel as though this is necessary. You can find out more about our portfolio service here.

    Utilising tax breaks

    Investments aren’t the only way you can protect your savings from losing value. You should look to make use of any tax breaks available to help make the most of your savings and investments.

    ISAs are a popular and tax-efficient way of investing your cash in the long term, a £20,000 tax-free allowance per tax year is available to everyone and goes a long way to help you maintain the value of your money. There are four types of ISAs available:

    • Cash ISAs
    • Stocks and shares ISA
    • Innovative finance ISA
    • Lifetime ISA

    How do I know if I will have enough?

    This is a common question we are asked and unfortunately there is no ‘one size fits all’ solution when it comes to retirement planning, and the answer could vary greatly for each individual based on their specific circumstances. Research from Aviva has found that one tenth of the UK’s workforce does not know if they will be able to have a comfortable level of income in retirement.

    When planning for retirement, it is important to consider seeking support and guidance from an experienced financial adviser. Typically, your adviser will work with you to establish a clear understanding of what income will be required to support your proposed retirement, when you plan to retire and what assets are already in place to support this. With the information, your adviser will be able to build a cashflow model, using sensible assumptions, to work backwards and highlight what you should be saving to achieve your desired retirement.

    Get in touch

    For further information or advice, contact a member of our financial planning team by emailing equiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.