Following the recent EU referendum result and a Brexit now firmly on the horizon, there has been much chatter around what it all means for the UK pensions industry. Given the immense changes that have occurred in the industry, even more uncertainty is making it ever more confusing.
In light of this, David Newman, Head of Pensions at Close Brothers Asset Management gives his top tips for approaching retirement in Brexit Britain:
- Every cloud has a silver lining - if you are making regular contributions to your pension plan and investing in the stock markets, then you may find that you benefit from the volatility in the markets by what is known as pound cost averaging. The effect of this is that you buy more into the markets when the price is lower, and less when the reverse is true.
- Remember, investing is for the long term – there have been various moments of uncertainty in the markets, think back to the crash of 1987 which now looks like a blip on the long -term graphs! Keep an open mind and don’t panic or make knee-jerk reaction, you must remember that when investing in the stock markets it is inevitable that there will be times of volatility and you can weather the storm.
- Make use of tax reliefs on pension contributions - when you are able to do this, particularly at higher rates, this can be beneficial. The Government may well revisit pension tax relief post Brexit to help balance the books.
- Phasing tax-free - if you are retiring now, consider whether there is real need to take all your tax-free cash in one go. "Phasing" tax-free cash can have benefits such as providing a tax-free lump sum each year tax-efficiently to help meet overall income needs.
- Shop, shop, shop around - with recent falls in gilt yields, it's even more important than ever to shop around for an annuity if this is a preferred retirement option, rather than just accept the rate offered by your existing pension provider. This is especially the case if you qualify for enhanced terms due to medical and/or lifestyle circumstances.
- Review your State Pension entitlement - given so many changes it is worth keeping your finger on the pulse and looking at what you may need to do to top up to the maximum entitlement available. You can check your entitlement here.
- Review your expected expenditure in retirement – it’s key that you clearly establish "essential" and "discretionary" spending, so in poor market conditions you can always look to reduce income from pension funds if necessary to cut back on discretionary expenditure that can wait for another day.
- Ensure income in retirement is set up as tax efficiently as possible - making full use of all available tax allowances/exemptions is crucial. Don’t forget to look at how different “tax wrappers” can work for you.
- For more money-saving tips, pick up the latest copy of Yours magazine