With Christmas now a distant memory and January well underway, 2024 may be the year you finally retire.
And with the exciting day fast approaching, now is the ideal time to take some vital steps to help make your retirement a success.
You’ll also want to make sure you’re aware of legislative changes expected from April 2024, including the new allowances set to replace the soon-to-be-abolished Lifetime Allowance (LTA).
Keep reading for five key tasks to complete now and some changes to look out for, so you can start drawing your pension with confidence and financial security this year.
1. Checking in with your retirement plans
Firstly, be sure to check in with your retirement plans and ensure they are still feasible, and on track.
You might already have a retirement date set. This helps you and your employer manage your departure and creates a practical timeline for getting ready for the next phase of your life.
Complications can often arise, though, so the sooner you check in the better.
Whether you’re hoping to tick items off your bucket list, or simply spend more time with loved ones, your priorities might have changed. Rising living costs might mean you need to pare down expensive travel plans, or a new arrival in the family might mean you plan to spend more time at home.
Be sure your plans are still aligned with your wishes and that any changes are affordable. Doing this at the start of the year should mean you’ve got time to react.
2. Top up your pension if you can afford to
Following the 2023 Spring Budget, the Annual Allowance – the amount you can contribute to your pension each year tax-efficiently – rose significantly.
You can now save £60,000 into your pension pot each financial year while still receiving tax relief on those contributions.
Consider giving your pension pot a last-minute boost by topping up now if you can afford to.
It’s worth noting that if you are a high earner, or you’ve already started making certain flexible withdrawals from another pension pot you hold, your allowance might be lower. Be sure you know which allowance applies to you and speak to us if you are unsure.
3. Factor in the State Pension
While it might not form the majority of your retirement income, your State Pension can provide a regular and reliable income that shouldn’t be overlooked.
The amount you receive currently rises each year thanks to the “triple lock”, in line with the higher of:
- Average wage growth
- Inflation
- 2.5%
Since average wage growth reached 8.5% in September 2023 (the month used to calculate April 2024’s rise), the State Pension will see an equivalent boost. In the 2024/25 tax year, the new full State Pension will be worth £221.20 a week, or £11,502 a year.
Check in with your State Pension now to ensure you receive your full entitlement. You’ll need to have accrued 35 “qualifying years” of National Insurance contributions (NICs) to receive the full amount. With less than 10 qualify years you won’t receive any State Pension at all.
Obtain a State Pension forecast to identify potential gaps in your record and consider making up missed NICs to maximise the State Pension you receive.
4. Consider your options for drawing from your pension
In the government’s 2023 Autumn Statement policy paper, the chancellor confirmed the abolition of the LTA. Formerly the amount you could withdraw from your pension funds without becoming liable for an additional charge, the LTA is set to be abolished from April 2024. The LTA had stood at £1,073,100.
Importantly, this figure also determined the amount of tax-free cash you could take from your pension. This is set to remain the case after April 2024, but this amount will now be known as your Lump Sum Allowance (LSA). It stands at 25% of the final LTA amount, or £268,275.
Note, that this allowance isn’t due to increase, but your personal LSA could be higher if you have certain HMRC protections. Be sure to speak to us if you’re unsure whether this applies to you.
Your LSA will determine the lump sum you can take via flexible options, as well as the value of your pension commencement lump sum, if you opt for an annuity.
Traditionally, an annuity was the favoured way of generating a retirement income. However, after the government overhauled the pension system in 2015 with the introduction of Pension Freedoms legislation, you now have several flexible options.
One of these is an “uncrystallised fund pension lump sum” (UFPLS). This allows you to take the whole of your pension as a single lump sum payment, a quarter of which will be paid tax-free (up to your LSA), while the remaining 75% is taxed at the highest rate you pay.
A UFPLS could cover the cost of large, single expenses early in retirement, like a round-the-world trip or helping a child onto the property ladder.
It’s important to remember, though, that your pension needs to sustain your desired standard of living throughout your retirement, so you’ll need to budget effectively.
Another flexible option is “flexi-access drawdown”. Here, you can usually take 25% of your pension as a tax-free lump sum and access the rest as flexible income as and when you need it. The rest of your pot remains invested.
You might also consider a “best of both worlds” approach. Using an annuity to cover your regular outgoings might free you up to be more flexible elsewhere. And remember, there’s no “one size fits all” approach, so speak to us before you decide.
5. Speak to a professional
Standard Life recently revealed that Brits who work with a financial adviser believe they’ll be able to fund their dream lifestyle for six more years than those who didn’t take advice.
Moreover, UK consumers who worked with a financial planner said they’d be able to retire three years earlier on average than those who didn’t receive advice.
We can help you review your retirement plan to ensure it still aligns with your goals and that they are on track and attainable. We could also help you consider your retirement options, guiding you toward the right balance of regular and flexible income for you.
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to find out how we 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.
