After a long career of hard work and diligently saving for retirement, the important decisions don’t stop on the day you collect your pension.
Not only are the months and years in the approach to retirement crucial, but the decisions you make when you get there can have huge consequences for the rest of your life too.
A recent report has found that at-retirement decisions could be costing pensioners £1.7 billion a year. These losses – a result of “sub-optimal” decision-making – could be avoided simply by taking professional financial advice.
Keep reading to discover some of the costly decisions pensioners are making and how Globe IFA can help you to avoid them.
£1.7 billion could be lost through tax charges, management fees, and not shopping around
Figures published by MoneyAge suggest that where pension providers don’t offer in-scheme solutions, retirees are forced to “go it alone”. In these cases, pensioners fail to receive the advice they need and could end up making decisions that aren’t right for them.
According to the report, sub-optimal decisions include:
- Failing to shop around
- Withdrawing pension as a single lump-sum
- Transferring to access greater flexibility.
Failing to shop around could mean you receive an uncompetitive annuity rate, while a single lump sum could see you pay more tax if you accidentally cross the threshold into a higher tax bracket. Multiple withdrawals could be more tax-efficient, especially if they are timed to span two tax years.
Pension Freedoms legislation can offer a greater degree of flexibility but you could find the transfer fees and annual management charges outweigh the advantages. If you opt to transfer a defined benefit (DB) scheme, you could also lose many valuable benefits associated with that type of scheme.
Taking professional financial advice is crucial. So too is understanding the type of pension you want and having a grasp of the options that best match your chosen lifestyle.
Ask yourself 3 important questions in the run-up to retirement
At Globe IFA, we will encourage you to think about a few simple questions, designed to make sure that the plan you have in place is aligned with your long-term goals and your dream retirement.
1. When do I want to retire?
This question is the first step in planning a retirement that works for you.
Once you know when you want to retire, you have a goal to aim for.
We can then take a close look at your finances and calculate the steps we need to take to ensure your chosen retirement date is realistic and attainable.
2. What will my retirement look like?
You will likely have an idea of the lifestyle you want to live in retirement. It might include foreign travel, new hobbies, or time spent with family and friends.
The lifestyle you want will have costs attached and knowing the extent of these is the next step in any retirement calculations.
Simply put, an expensive lifestyle and an imminent retirement date will require a greater level of saving than modest retirement plans still many decades away.
3. How should I retire?
Once you know the type of lifestyle you want to lead, you’ll be able to estimate the periods of largest expenditure and assign your potential pension and non-pension income.
If you plan to travel the world or make expensive house renovations in the early active years of your retirement, taking a lump sum from one of your pension pots might be a good idea. You’ll just need to be sure you do so in a tax-efficient way.
If you other have potential income – from the State Pension, or a workplace pension – you might use this to cover regular, fixed expenses by taking an annuity.
Get in touch
If you are approaching retirement without knowing the answers to these three retirement questions, get in touch now.
Where your pension scheme doesn’t offer its own retirement solutions, you might find yourself forced to search for an appropriate third party. It is this shift – at a very crucial time – from the accumulation phase of your retirement into a retail environment (in which you might have little experience) that is leading to such huge losses for retirees.
At Globe, we can help you navigate the years leading to your retirement, help you make the best choice at retirement, and help you to manage your income for the rest of your life. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
