Why do I need pension advice?
Having spent years diligently saving money into a pension to fund your retirement, it stands to reason that you want the money to serve you well and last as long as possible. This means you need to pick the most appropriate retirement product (or products), and with more options than ever now available, regulated pension advice is essential.
The pension reforms have now taken effect, and have scrapped the effective forced annuitisation of a pension fund. Instead, people can enter income drawdown or remove ad-hoc funds from their fund whenever they want to. Annuities are still available, and the security of an income for life can be very appealing. However, as we detail in our blog post ‘What annuities mean for you’, there are different types of annuity with different features, and the income offered for a given annuity can vary between these types and even by different providers. This means that even if you know you want an annuity, it isn’t a straightforward decision and talking to an adviser can help you pick the most appropriate one for you.
There can be a 60% difference between the highest and lowest annuity income, so taking the first quote without looking at others can be a costly decision. We demonstrate in the following graph how the level of income offered can vary for the same fund. The figures are from December 2014, with a £100,000 pension fund from which 25% tax-free cash had been taken and 3% escalation has been applied:
The decision gets even harder if you are not sure how you want to receive money in retirement. Restrictions on who could use flexible drawdown or how much could be removed with capped drawdown have been lifted, providing new options to anyone in a money purchase pension scheme.
There are also tax implications to be aware of. You can still remove 25% of a pension tax free, but the remainder of the fund is treated as taxable income, so depending on your other income and the size of your withdrawals you could end up paying a higher rate of tax. An adviser can explain how withdrawing the money over time could reduce your tax bill in a clear way and personalised to your circumstances.
Can’t I use Pension Wise?
Pension Wise is the government’s free guidance service, which was implemented to explain people’s retirement options. It should be used as well as, not instead of, advice. Guidance will tell you what you can do, advice can recommend what you should do. As such, guidance is a good starting point in your retirement strategy research, but it is not sufficient to make final choices from. Regulated advice also offers the safety net of access to the Financial Ombudsman Service if things go wrong.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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