New world of pension options
A brave new world
If you're approaching retirement, changes that came into place in April 2015 opened up a whole new world of possibility when it comes to your pension options.
Pension freedoms were widely publicised in the run up to April 2015, with the media fearing that the power to withdraw all their money would encourage retirees to blow their whole pot on a Lamborghini, leaving them nothing to live on.
We're now nearly 12 months in to this new world, and as the promise of a dramatic revolution wears off, now is a good time to take a closer look at all the opportunities pension freedoms have offered our clients. Below are seven tips that could help you get to get to retirement heaven.
- Don't miss out – make sure you know which of your savings can access the new pension freedoms. Older pensions should be reviewed to understand which contracts can support the new flexibilities.
- Consider a consolidation conversation – to make the most of the new rules you might want to consider transferring pensions that don't support all the options that are now available. If you have multiple pension pots this could also be a good catalyst to think about tidying them up, making it easier to monitor value and how it's invested. However this might not be the right thing for everyone so it's important to make sure it's right for your personal circumstances.
- Review, review, review – ISAs, pension bypass trust arrangements and death benefit nominations will all benefit from a check-up. Your investments should be reviewed regularly and it's worth establishing whether you may benefit from transferring your ISA to a pension to access tax relief. You should also take the time to ensure that your trust arrangements and nominations are up to date. Due to new pension death benefit options, you may wish to work through these decisions with your family or other beneficiaries.
- Agree a clear withdrawal policy – pension freedoms provide more choice when it comes to your pension pot including accessing cash, keeping your savings invested, drawing a flexible income, buying a fixed income or a combination of these options. Your Private Client Manager will be able to talk you through the options and help you create a strategy which provides the income you need while using your investments efficiently.
- Know your goals – to make sure you're on track to meet your retirement goals, it's wise to review your investments and the income they're likely to generate in retirement. Be clear that your Private Client Manager understands your ambitions for retirement so they can spot if things are going off-track and can take action.
- Optimise withdrawals – you should consider the order of investment portfolios used to support withdrawals to minimise tax and investment risk for income optimisation.
- Beware of scams – more flexibility for you can also mean more opportunity for scammers. Try to spot the signs of potential scams and protect yourself.
Getting the best from retirement planning is complicated, and the need for advice has never been greater. Tax is one of the most important factors when it comes to taking money out your pension, with many not fully appreciating the tax implications of exercising pension freedoms. While you can now access your whole pot, only the first 25% is tax free, with the rest subject to income tax of 20%, 40% or 45% depending on the amount involved. Making a one-off withdrawal can also subject you to an emergency tax code which can result in too much tax being paid upfront – although you can claim a refund from the HMRC website.
Your Private Client Manager will help you identify your goals, using them as the basis to consider the most effective method for tax optimisation when you come to withdraw from your pension. They will also look at investment volatility management, tax wrapper and portfolio targeting, client withdrawal policy and estate planning to help you get the most from pension freedoms.
In turn, you should make sure you're happy with how your plan is progressing as you approach retirement and that both you and your Private Client Manager really understand your goals.
If you have any questions about anything covered in this blog, your Standard Life Private Client Manager will be happy to help.
Laws and tax rules may change in the future. The information here is based on our understanding in January 2016. Personal circumstances also have an impact on tax treatment. The information in this blog or any response to comments should not be regarded as financial advice.
This site is for UK clients of our Private Client Management service.