The Pension Zone

Retirement planning? What does this mean for you?

Retirement is often seen as the end of a chapter, the end of your working life and to start enjoying your free time. Planning for retirement isn’t just about getting your funds organised, it’s about planning how you wish to spend your new-found freedom, exciting times.

Depending on your circumstances, you may want to take the opportunity to change your lifestyle completely, move home, start a new business or travel the world. And like all big projects, the more time you can plan and think it through, the better the outcome could be.

Managing Your Money
Getting financial planning advice before accessing your pension pot can go a long way to help alleviate financial worries later. With life span’s increasing, more people than ever will spend longer in retirement than previous generations.

The changes in legislation have given those about to retire far greater freedom when it comes to using their pension pot, but freedom brings with it greater individual responsibility.
It is agreed that spending in retirement tends to follow a u-shaped curve. People often spend more money in the early, more active years of their retirement, spending decreasing in the middle years and increasing again later if life with medical expenses more likely to be required.

Budgeting For Your Lifestyle
It makes sense to begin drawing up a budget for your retirement that covers your possible income needs. There are several factors to consider. You may have income from employment; equally you could choose to give up work altogether and tick off the items on your bucket list. You may decide to downsize from a family home to a smaller retirement apartment that is cheaper to run and means you can extract some equity to bolster your income.

You may want to help children or grandchildren financially by paying for school fees or helping them with a deposit for a home of their own. You will also have to plan for a time when you might need to pay for help around the house, and for the likelihood of needing medical and nursing care in your later years.

To take professional advice and create a roadmap for your financial future, please call 0808 164 2664 or click here and we’ll call you back.

Drawdown – Understanding The Risks, Advice Is Essential

We’re sure you’ve heard the term Income Drawdown; this is where you leave your pension fund invested and take income as and when you need it, instead of using the cash to buy an annuity as people did traditionally. As the money remains invested, the pension fund can continue to grow, even when you’ve retired.

Since pension reforms, introduced in 2015, more retirees have opted to take this more flexible option with their pensions, and the Financial Conduct Authority has reported that drawdown has become much more popular, with twice as many people moving their funds into drawdown rather than an annuity.

Understanding The Risks With Drawdown
While drawdown offers excellent flexibility, there are risks that you need to be aware of. Unlike an annuity, the amount you could draw as income isn’t guaranteed. Your pension fund remains invested which means that you are exposed to share price movements as markets rise and fall. The volatility makes it even more important to take good independent professional advice. Without it, you could find your income level, and you might even risk running out of money at some point.

In drawdown, there are risks involved both in taking out too little and too much. If you draw too little you might not have sufficient to cover your living expenses, taking out too much could have tax implications and restrict your remaining pension pot’s ability to provide an income throughout your retirement. A financial adviser can provide valuable input, helping you plan your drawdown strategy and ensuring that it’s kept under regular review.

Although it’s no longer obligatory to take an annuity at retirement, they still have benefits to offer. It is possible to put a portion of your pension pot into an annuity to provide a regular guaranteed amount for the rest of your life. Some people choose to do this to ensure they cover their core living costs.

To get free, impartial advice on Pension Drawdown, contact us today on 0808 164 2664. Or to find out more about Pension Drawdown, click here

Retirement Planning

Inheritance Tax – Time For An Overhaul?

If ever there is a UK tax that needed a major overhaul, then Inheritance Tax (IHT) must be a top candidate. Many families will be delighted to hear that the Chancellor, Philip Hammond, has written to the Office of Tax Simplification (OTS) asking them to reform IHT “to ensure that the system is fit for purpose and makes the experience as smooth as possible”

Mr Philip Hammond in his letter asked the OTS to look at the technical and administrative issues with Inheritance Tax, the process of submitting returns and paying the tax. Mr Hammond also called for a review of the problems surrounding estate planning, and whether the current framework causes ‘distortions’ to taxpayers’ decisions regarding investments and transfers.

Property Price Rises and Rise In Inheritance Tax
In the 2016-17 tax year, HMRC raised a hefty £4.84 billion in Inheritance Tax, brought about mainly by rising property prices that are seeing more and more families drawn inexorably into the tax net, despite doing nothing more than owning their own home.

Inheritance Tax has undoubtedly made several aspects of financial planning more complicated. With the Bank of Mum and Dad currently a significant source of funding for house purchases for first-time buyers, the operation of the seven-year rule is becoming a vital issue that needs careful consideration in effective tax planning. The annual tax-exempt gift allowance of just £3,000 arguably needs a significant overhaul, as does the out of date amount of £5,000 that can be given away to offspring on their marriage.

Since the advent of pension freedoms three years ago, it has become more tax-efficient to pass on a pension than an ISA, meaning that some people have found themselves viewing their retirement savings in a whole new light.

Raising the Limit Across the Board
Given the individual threshold for Inheritance Tax has remained at £325,000 since 2009, many would argue that, rather than adding another layer of complication such as the RNRB, the most straightforward and fairest thing to have done would have been to increase the Nil Rate Bond to a limit that bore some correlation with the rise in house prices. Hopefully, that’s one of many thoughts currently crossing the minds of the Office of Tax Simplification.

Older workers facing the pressure of intergenerational needs

It’s estimated that around 1.9 million workers aged over 50 find themselves juggling the competing needs of the younger and older generations, sometimes overlooking their own financial planning requirements. As a result, many feel under pressure to go on working for longer; others sacrifice saving for their retirement to help other family members.

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