Pension Freedoms: Taking responsibility for funding our own retirement.

Although each generation will likely face different challenges and opportunities, achieving retirement readiness will require actions common to us all. We all know that our ageing population and increased life expectancy are putting a strain on government finances. Following pension freedoms, there’s greater choice than ever before in how you access and take your retirement benefits.

Now, more than ever, it is vital that we all take responsibility for funding our own retirement. But what if you’ve reached your 50s and you have little or no savings to speak of? Don’t panic. You can still build a decent pension. Here’s how:

MAKE THE MOST OF FREE MONEY

The good news is that there’s still time to build a decent pension pot when you are in your 50s. For starters, many people of this age are at the peak of their career earnings, so can make the most of the tax relief available when contributing to their pension. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.

If you’re a UK taxpayer, in the tax year 2018/19 the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance – whichever is lower.

Any contributions you make over this limit won’t attract tax relief and will be added to your other income and be subject to Income Tax at the rate(s) that applies to you. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

But there is an exception to this standard rule. If you have a defined contribution pension and you start to draw money from it, the annual allowance reduces to £4,000 in some situations. Since April 2016, the annual allowance is also reduced if you have an income of over £150,000, including pension contributions.

TRACK DOWN YOUR WORKPLACE PENSIONS

Launched in May 2016, the Pension Tracing Service is a free-to-use government initiative that searches a vast database of pension schemes to help you find a lost pension from companies you almost forgot you worked at, as well as private pension providers.

All you need is the name of the employer (or the pension provider) and the dates you worked there, and the system can locate it. What it can’t do is tell you if you do or do not have a pension there, or how much the fund is worth. However, with the details it provides, it can help ‘reunite’ you with pensions you may have forgotten you had.

STEPS TO TAKE TO TRACE YOUR OLD PENSION:

  • Keep hold of statements, old emails or mail you’ve had from previous pension providers
  • Contact former employers for long-forgotten workplace pensions
  • Get in touch with the pension provider if possible
  • If you can’t, then track them down via the Pension Tracing Service
  • Get as much information as you can about those pension plans

PENSION CONSOLIDATION

If appropriate to your particular situation, having all your pension savings in one place could mean you’re clearer about your financial position, giving you the option to make more informed decisions. If you’ve had more than one job during your career, you could have more than one pension pot.

Pension consolidation means bringing a number of pension pots together into a single pot. This process will not be right for everyone, and it is essential to obtain professional financial advice before moving any pension monies.

You will need to compare the benefits from your current pension with the estimated benefits of your new pension, including any guarantees that you may be giving up or any exit penalties that may apply if you transfer out of a scheme. Transferring your pension may not be the best option for you.

If appropriate, consolidating your pension monies may reduce the money spent on multiple charges and could make managing one pension easier than looking after several. Instead of receiving statements from different providers at different times, you’ll only receive one statement that shows all of your pension savings.

By combining all of your pension pots together, you can also quickly and easily see how much you’ve got, if you’re invested in the right funds and how your pension is performing. Your investment portfolio can also be matched to your preferred risk profile. This single view could make it easier to see if you’re on track to meet your retirement goals  and to make changes if you need to.

It’s important to keep a close watch on the pension savings you’ve got and consolidating them could mean you don’t lose track of your savings.

TAKING GREATER RESPONSIBILITY

We’re now expected to take greater responsibility for funding our own retirement. There’s a lot to think about when you’re planning your retirement. And don’t forget your situation may change in the future, so it can help to be flexible. If you would like to discuss your particular situation or arrange a meeting, please contact us.

Who are Vizion Wealth?

Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.

All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.

DISCLAIMER:

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

TAX TREATMENT DEPENDS ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN THE FUTURE.

“The information contained in this article is intended solely for information purposes only and does not constitute advice.  While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article”.

Posted by Andrew Flowers

Andrew is the managing partner of Vizion Wealth and has been involved in the offshore and onshore financial services industry for over 18 years. Andrew was the driving force behind Vizion Wealth after years of experience in a number of advisory roles within high profile wealth management, private banking and independent financial advisory firms in the UK.

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