Planning for and at retirement
What’s usually called retirement planning has two aspects:
- Planning in advance to achieve the retirement income you want
- ‘At retirement’ planning where you reorganise your assets to generate the returns you need to support your chosen lifestyle
As financial planners we naturally encourage people to plan as far in advance as they can. If you start your retirement planning a decade ahead, you can be more confident about the outcome and adjust your holdings progressively over a period of years. Often, of course, people’s intended retirement dates change, so we encourage clients to review their retirement plans annually.
Some people simply accumulate what they can and wait to make long-term plans until they are on the verge of retirement. At that point, people often need to generate a certain level of income from the capital available to top up a fixed pension income.
The new ‘pension freedom’ rules, announced in the 2014 Budget and which took effect from 6th April 2015, have created opportunities for you to take money from your pension funds as and when you choose.
Flexibility of withdrawals combined with income tax relief on contributions makes pension funds an attractive tax shelter for most people – which they were not under the old rules.
On top of that, pension funds are considered to be separate from your estate. With the abolition of the ‘death tax’ on money remaining in the fund on death, pensions can now be used to pass capital on to future generations free of inheritance tax.
With careful planning, your beneficiaries, perhaps including grandchildren, may be able to withdraw substantial sums without paying income tax.
For many people, paying more into their pension funds now makes sense – because they will have access to the capital, and the taxation of any withdrawals is fair. It can even make sense to think about using some of the capital you have accumulated in ISAs to top up your pension fund, provided you can get tax relief on the contributions.
For people who are members of company pension schemes, significant issues about pensions arise at retirement, when it is usually necessary to move the plan to an independent pension provider to benefit from flexible withdrawals.
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