5th January 2017

Making sure you can sustain the level of income you need

From stopping work altogether to a slow and gradual reduction of commitments – retirement means different things to different people. Making sure you can sustain the level of income you need as you move away from full-time employment or your business interests is key to a long and happy retirement.

Increased complexity
While pension rule changes in recent years have increased their flexibility, they have also increased the complexity. But pensions still offer a very favourable tax status, and there are now more ways than ever to generate income from pension assets when you retire: from buying an annuity to taking a lump sum or making regular withdrawals while continuing to invest.

In April 2015, the Government introduced the most radical changes to pensions in almost a hundred years. The pension freedoms (announced by the previous Chancellor, George Osborne, in Budget 2014 and introduced on 6 April 2015) now mean that instead of being required to buy an annuity with your money purchase pension pot, if you’re aged 55 and over you have more flexibility to take your money how you wish. Generally, 25% of the pot is tax-free, and the remainder is subject to Income Tax at your current rate.

Financial structure
A critical aspect of retirement planning is how you structure your financial affairs to make sure you have sufficient money if and when you stop working. Making sure you have enough money in retirement to enable you to spend your time the way you want to and do those things you always intended is at the heart of planning for your retirement.

We are all living longer – the State Pension Age has steadily increased and pensions legislation is ever-changing. As we enter a new year, it makes sense to reassess your situation and to ensure you have in place a flexible retirement strategy that will enable you to enjoy yourself and still look after your family.

Other considerations
Retirement planning also involves more than just thinking about pensions. Individual Savings Accounts (ISAs), general investments, property, National Savings and cash deposits can all play a part in a retirement plan too.

The pension changes mean that we’ll be increasingly in charge of our pensions, both while we’re building up our retirement pot and when we start to draw an income. It’s therefore more important than ever to plan our retirement saving from an early age.

Getting started
If you’re not saving for retirement, it’s time to get started. The sooner you start, the more time your money has to grow. Make saving for your retirement in 2017 one of your top priorities. Remember, it’s never too early or too late to start saving.

But remember that if you already have a retirement strategy in place, it pays to be prepared as retirement nears. Around two years before you want to stop working is a good time to start thinking about your retirement options and the choices you’ll need to make. You should obtain professional financial advice because these are decisions that can shape your income for the rest of your life.