Understanding where you want to be and where you want to get to.
UNDERSTANDING YOUR OPTIONS AND PUTTING A PLAN IN PLACE
We spend our working lives building towards retirement. Choices we make today will have a big impact on the quality of our lives later on. If you only have a handful of years to go until you reach your retirement, it has never been more important to understand your options and put a plan in place – now could be a good time to re-evaluate your plans with us.
The changes made to UK pensions in 2015 mean that we all have more choices available on how to fund our lifestyle in retirement. But decisions surrounding when, why, and how you decide to retire will be very personal and will largely depend on your individual circumstances. These decisions will also be impacted by external factors such as the rising State Pension age, and the impact of the recent pandemic on the job market.When planning for your future, it’s important to know when you can access the money in your pension pot. If your pension is not on track to give you the income you want in retirement, you need to look at how to boost it. It’s also worth remembering that taking your pension doesn’t mean you need to retire.
TAKING STOCK OF YOUR RETIREMENT PLANS
Retirement is a time to reap the rewards of years of hard work and do more of the things that you love, whether that’s travelling the world or spending time with your grandchildren. But to make this a reality, you need to prepare as well as you can financially. This isn’t always easy, as pensions and retirement planning can be complex. To help you ensure you’re on the right track, ask yourself the following questions.What type of pension/s do I have? Do I have more than one pension pot? If so, where are they? When and how can I access the funds in my pension pots? What is the value of my pension pots? What benefits will they provide me with? What about any other options or guarantees?
WILL YOU POTENTIALLY EXCEED THE PENSION LIFETIME ALLOWANCE?
If you’re close to retirement, you may find you are approaching the Pension Lifetime Allowance (LTA) limit.The LTA is the most you can accrue overall within your pension plans without incurring an additional tax charge on the excess funds.The LTA test can take place at various times and all funds are tested at some point (for example, when your pension plan is accessed, if you die without having accessed it and/or on reaching age 75).The LTA has been cut over the years and is now £1,073,100 for the 2021/22 tax year. The LTA has also been frozen at £1,073,100 until 2026, potentially exposing you to the charge for breaching the threshold. If you breach the threshold you face a 55% LTA charge on amounts taken above this ceiling if they are withdrawn as a lump sum (with no further income tax due beyond the 55%), or a 25% LTA charge when taken as income which includes placing the funds in a drawdown plan. In addition, any income withdrawn is then taxed at usual income tax rates. If you think you are nearing the LTA, it’s important to monitor the value of your pensions, and especially the value of changes to any defined benefit (DB) pensions as these can be surprisingly large. DB pensions are valued for LTA purposes as 20 times the annual pension figure, plus the tax-free cash amount, whereas defined contribution (DC) pensions are tested against the LTA based on the fund value. There were, and are, protections that can help you avoid a tax charge by giving you a higher LTA. We can discuss whether this applies to your situation.
