Those who are approaching retirement and have a defined contribution (DC) pension, now have a lot of decisions to make thanks to the pension changes. You have to decide whether you want an annuity, drawdown, to take cash withdrawals or a combination of options; when you want to take their pension; if it’s better to use savings first before drawing your pension - and the list goes on and on.
WEALTH at work, a leading provider of financial education in the workplace, supported by guidance and advice shares its tips for successful retirement planning.
1. Make a basic retirement plan
Think about what you will be doing, how much you think that might cost and when those costs might be incurred. Build in some flexibility as it is almost certain that your plans and needs will change throughout retirement. Use our budget planner.
2. Collate information on ALL your assets
Before you start to make any decisions based on your retirement plan, gather up-to-date information on all of your pensions and savings. Find out how much you can expect from your company pensions and when they will pay out, and the value of other savings and what they are, ISAs or shares for example. The pension income and your savings are what you're going to use to replace your monthly pay.
3. Get a State Pension statement
The State Pension rules will change on April 6, 2016, meaning that the full new State Pension will be £155.65 per week and will depend on having 35 qualifying years of National Insurance contribution. There will be a deduction for those who were contracted out of the Additional State Pension. In reality, many people will not be eligible for the maximum amount of the new State Pension. Therefore, it's important that you check your State Pension record and National Insurance contributions history early; if you have any gaps you may still be able to make up the difference. You can request a State Pension statement using a form called a BR19, which is available online or by calling the government helpline on 0345 3000 168.
4. Find out what your options are
Pension Wise is a good place to start. The service provides free and impartial guidance on DC pensions, for those age 50 and above. Although it can't give you advice, it can certainly give you a good insight into your options, and the advantages and disadvantages of these.
5. Speak to your pension provider to find out what your scheme allows
Do they offer the full range of pension freedoms including, annuity, drawdown, a cash withdrawal, or indeed a combination of options over time? If your provider doesn't offer what you want you may need to transfer out of the scheme to a provider who can facilitate this. You may want to ask yourself if you are confident enough to go it alone, or if you would be better off contacting a financial adviser to discuss your options. Find an independent financial adviser via unbiased. You can find out more about choosing a financial adviser here.
6. Find out how long it will take to get access to your pension
Pension schemes don't operate like bank accounts, there's no instant access. It can take weeks to get payments through, so find out from your pension provider exactly how long it will take as you may need to let your scheme know a bit sooner than you might think. You don’t want to retire and find you have two months to wait for your first payment.
7. Work out which options might be right for you and how to put your plan in place
The guidance from Pension Wise might be enough, but if you have more than just a small pension, perhaps some ISAs, other pensions, property, or if your partner has other assets, you might want to consider getting financial advice. A financial adviser should look at all of your assets and work out the most tax-efficient way for you to fund your retirement income, and put the plan into place for you.
8. Be clear about all the costs involved
Whichever route you take make sure you are clear about all the costs involved. Doing it yourself isn't free and there will be charges and commissions to pay. Advice can more than pay for itself, especially if it saves you from making a costly mistake.
9. Scams don’t look like scams
Scams look and sound legitimate, which is why people are hoodwinked. They often have very professional looking websites and literature. Whatever you're planning to do with your pensions money, check before you do anything that the company is registered with the Financial Conduct Authority (FCA). You can read more about keeping your money safe here and pension scams here.
10. Take your time
Retirement is likely to last a long time, so don't make snap decisions or rush into anything you’re not sure about.
- There are more money-saving tips in every issue of Yours magazine, out every fortnight on a Tuesday.