Top Tips To Get The Best Pension Income
When you convert your pension pot into cash and income you will be making one of the most important financial decisions of your life so you owe it yourself and your family to make the right decisions
We have over 25 years’ experience in advising clients on all aspects of pension income and as part of our commitment to help people make the right choices at retirement we have set out our tip tops.
1 - Understand your options
Pension freedoms means that you can now take cash and income from your pension pot any time after age 55 with almost no restrictions or string attached (except for paying some tax).
However, freedom is not licence to spend your money unwisely, and just because you can take money from your pension pot it does not necessarily mean it is to your advantage to do so without weighing up all of the options.
2 - Think income – think about your old age
Everybody needs income and many people need as much income as they can get to pay their everyday bills and enjoy their retirement.
Although you can now take cash sums from your pension, it is worth remembering the reason you saved into a pension in the first place was to provide an income in retirement.
One of the problems that you might face is that if you take too much cash or income in the early part of retirement you could run out of money later in life. On the other hand, if you don’t take income from your pension you might not do all the things you want to.
There is a joke in the pension world; ‘live life to the full, spend your money wisely and the last cheque you write should be to the undertaker and it should bounce’.
It’s your money so we won’t tell you how to spend it but we will encourage to think about how you can get an income that will last you for the rest of your life to give you peace of mind and financial security.
|Age now||Years||To age||Years||To age|
3 - Annuity or drawdown
We have spent over 25 years trying to answer one of the most important and difficult questions in financial planning; ‘should you purchase an annuity or invest in pension drawdown’ and we still don’t know all the answers. It is not that we are stupid (well my wife thinks I am), it’s just that it is very complicated and there is not necessarily a right or wrong answer. This is why we always have an open mind and make sure all the relevant options are considered.
We believe there is a strong case for annuities and a strong case for drawdown but the final decision depends on your personal circumstances.
4 - Shop around for the best annuity and take stock of your health
There are many reasons why an annuity may be the best solution for you because they are still the only financial policy which guarantees income for life, no matter how long you live.
If you are considering an annuity it is important to shop around for the highest income and if you smoke, take prescription medication or have a medical condition that may affect your life expectancy, you can apply for an enhanced annuity.
5 - Select the right drawdown options
If you decide taking income direct from your pension plan is the best option it is important to invest the best drawdown plan and select the right options.
There are a lot of moving parts inside a drawdown plan so it is important to make sure that you consider the following:
- How much income you withdraw every month or year
- How your funds are invested
- How much you are paying in costs and fees
All drawdown plans are equal, but some are more equal than others.
6 - Keep it in the family if you can
If you die before the age of 75, your beneficiaries can get hold of your pension pot without paying any tax and if you die after age 75 they can get control over your pension fund and only pay tax when they take cash or income. Not many people know that!
|Death benefit option||Death before age 75||Death after age 75|
|Take the pension as a lump sum||Tax-free||Income taxed at the beneficiaries' marginal rate|
|Continuing with drawdown||Tax-free income||Income taxed at the beneficiaries' marginal rate|
|Converting your drawdown fund to a lifetime annuity||Tax-free income||Income taxed at the beneficiaries' marginal rate|
7 - Get financial advice
Now we would say that wouldn’t we!
There are many reasons why it is in your best interest to get financial advice:
- The stakes are very high – get it right and you will maximise your pension returns but get it wrong you might not have enough money in retirement
- It is simply too complex for you to make the right decisions without advice because there are so many options and so many risks to take into account
- If you get it wrong you may not be able to put things right
- You owe it to yourself and your family to make the most of your pension pot
- You may be thinking that advice is complex and expensive but not if you deal with us
The management team at Better Retirement have been working together for over 25 years and are passionate about helping people like you make the right decisions. Our advice process is customer friendly but specialised and professional and normally there are three steps:
- Getting to know us and we getting to know you
- Comparing and contrasting the relevant options
- Advising you which solution is best for your circumstances
As fully regulated financial advisers we do not get paid commissions so there is no smoke or mirrors. There is no charge or commitment at the outset and before we start charging for our services we will agree a fee with you in advance which can be taken form the pension pot when so you do not have to pay anything directly.
Don’t take our word, just read our many contributions to the national press and BBC.