Planning your retirement income
If you are thinking ahead to your retirement and need to know what your financial options are, we can help. If you are thinking of retiring early or would like an annuity quote, Plan Your Retirement can offer you independent financial information.
We can provide you with helpful tips about retiring abroad, calculating your pension and planning a secure retirement.
Planning for a comfortable and secure retirement is not just about paying into a pension, it is about making sure you have the level of income that you need when you retire. Your pension is a significant asset that you have spent many years creating, so it makes sense to get the best possible advice about your various financial options before you reach retirement age.
Everybody's circumstances are different - the pension benefits that are available to you will depend upon many factors and getting the right advice now can make all the difference when it comes to planning your retirement.
The pension benefits that are available to you will depend upon many factors and getting the right pension advice now can make all the difference when it comes to planning your retirement.
When can I retire?
By April 2010, the minimum age at which you'll be able to take your company or personal pension will have increased from 50 to 55. You can put off taking it until you are aged 75.
However, you may still be able to take your pension before age 55 in certain circumstances, for example if you are unable to work due to ill-health. Your pension administrator will be able to tell you what your scheme allows.
Pension options since 2006
Following changes made to pension rules in April 2006, there is now more choice regarding how and when you can take your pension benefits. But bear in mind that personal pension schemes are subject to individual rules so you'll need to check with your pension administrator what your particular scheme allows.
Taking a tax-free lump sum
You can now take up to 25 per cent of the value of your total pension savings from all sources as a tax-free lump sum when you retire, up to a maximum of 25 per cent of the 'lifetime allowance' for that tax year.
For the tax year 2007-2008 the lifetime allowance (tested against your total pensions savings) is £1.6 million, gradually rising to £1.8 million by 2010-2011.
If your total pensions savings exceed the lifetime allowance you can still take up to 25 per cent of the total as a cash lump sum, but the element that comes from the excess is subject to a 55 per cent tax charge.
Lump sums from small pension funds
If your total pension savings from all sources was £15,000 or less (one per cent of the 'lifetime allowance') you may be able to take the whole amount as a cash lump sum, with 25 per cent tax-free.
The limit for being able to take the whole fund in cash will gradually rise to £18,000 by the 2010-2013 tax year.
Drawing an income from your pension
You have the following options (after you've taken any tax-free lump sum):
*Use the (remaining) fund you've built up to buy an annuity (a regular income payable for life) from a life insurance company; this does not have to be the same company that you had your pension plan with.
*Draw a taxable income directly from your pension fund, as an 'unsecured pension' before age 75.
*Draw a taxable income directly from your pension fund, as an 'alternatively secured pension' from age 75 (similar to income withdrawal but with lower withdrawal limits).
What is an Annuity?
You may be familiar with the term 'pension annuity' and just want to know what to do for the best as you approach retirement age. If you're not so sure what it is and how it works, then please let us talk you through what is involved.
The income you get from an annuity depends mainly on the size of your pension fund and how long the annuity is expected to be in payment. It also depends on the pension provider. Because you don't have to buy an annuity from your own pension provider, it's important to shop around to get the best deal.
This is where Plan Your Retirement can help you decide. You can have a FREE, NO-OBLIGATION initial chat about your situation with an FSA-regulated independent financial advisor – you then decide if you want to take things further.
You are free to ask your advisor about your individual situation and any thoughts you may have had about your retirement planning – he is an expert in this field and will advise you accordingly. When you are totally satisfied that you wish him to act on your behalf, you will jointly agree how you want to proceed.
It is a very simple, no-hassle and entirely professional process – you'll be glad you asked!
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What's new? Phased Retirement for anyone (2016)
Phased retirement was introduced to add flexibility to drawing benefits from a personal pension. Basically, it divides your pension fund into one thousand little policies allowing you to draw the combination of tax-free cash and annuity income from each one separately. The concept is to encash (vest) the exact number of plans each year to meet a target income.
As most of the cash released comes from the tax-free cash element of the policy initially there is very little tax liability in the early years. Over the years the annuity element will rise and eventually this will provide the majority of the income.
The main advantages of the system is that it allows you to adjust your income levels at will in the early years and to leave most of the fund invested whilst drawing an income. Annuity purchase is thus delayed and spread over a number of years rather than taking place all at once. The concept is very flexible but the main disadvantage is that most of the tax-free cash is used to provide income and cannot be drawn as a lump sum.
These days phased plans are often combined with income drawdown to give the greatest possible flexibility but the administration of these plans can be complex. At age 75 any remaining funds that have not been vested must then buy their annuity (or tax-free cash.). Phased Retirement -
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