Planning your retirement is set to get easier from April 2016, as the Queen’s Speech [...]
Do you spend more time Christmas shopping then planning your retirement?Created by Verity in Retirement and pensions
Christmas is nearly upon us and as usual I am in a mild panic wondering what to buy my wife, ed children and parents. I know from talking to my parents, link who are now retired, try that they spend ages trying to figure out what to buy the grandchildren. This led me to wonder whether we may be focusing our energy on the wrong things. This is particularly true if buying presents for very young children. It never ceased to amaze me when my kids used to play with the packaging more than the actual present!!
As we know Christmas comes round once a year and can consume a large proportion of December worrying what presents to buy, when to post the cards and what to eat and drink. There was some research performed by Aviva a few years ago which showed that people spend less time on deciding what to do with their accumulated pension fund at retirement than choosing a present at Christmas. In fact the majority of people at retirement spend no time at all in deciding what to do with their pension fund and simply stick with their pension provider to give them an income for life in retirement. These people are potentially losing out on 40% a year more income for the rest of their life. Now just think about what extra presents you could buy with that.
The main reason people do not shop around is that either they do not know they can or they feel confused and uncertain over what to do. When we ask our customers to provide feedback on our service after we have secured them considerably more income in retirement, firstly they are very pleased with the extra cash but secondly they are surprised by how easy it is. Retirement experts such as www.happy2retire.co.uk provide you with all the information you need, fill out as much of the forms as possible and search the whole market to get the highest income for you. You can call them on 0800 210 1000. They really do take most of the work away from you so you can focus on the Christmas shopping!!!
Do you need extra cash over the Christmas and winter period?
A lot of people will be receiving their winter fuel allowance now and although it will be very welcome, given the significant rise in oil,gas and electricity prices recently it will not fully cover the cost increase. The utility companies have been under the spotlight for the last few months and there has been heated (excuse the pun) discussions in the houses of parliament. This resulted in some measures announced this week to move some of the levies from individual bills to general taxation. However, a lot of people will struggle to pay the bills, which coupled with Christmas can be a difficult time for people.
So how does this affect retirement and getting an income from the pension you have saved into all your life? The answer lies in retirement planning and choosing when to take your benefits from your pension rather than when to retire from working life. Under current regulations anyone can start to take your pension income after the age of 55. The law doesn’t say you have to retire before you can start taking income from your pension. So what’s the catch? Well, the earlier you start to take your income the less income you will have each year as it is assumed you will live for longer so your pension fund has to provide an income for a longer time period. However different companies offer different rates for different age profiles. This means that you may be pleasantly surprised at how small the difference is by waiting a few years. Also you shouldn’t forget that you will be able to receive the tax free cash sooner.
It is probably easier to provide examples. At current rates if you are a 63 year old living in Birmingham and have no medical conditions (medical conditions will increase the level of income), and have a £50000 pension fund, the current rates are as follows. If you choose to start taking your benefits now then you could receive £12500 as a lump sum tax free amount leaving £37500 to buy an income for life. The best rate at present is £2245 a year. If you delayed taking benefits until age 65 when you retire from work the best rate at the moment for a 65 year old healthy man in Birmingham is £2344 a year, a difference of £99 a year for life. Therefore you have taken the tax free cash of £12500 two years in advance, you have taken two years of £2245 in advance but under current rates you are sacrificing £99 a year. Therefore you will have to live more than 48 years in retirement (i.e. live beyond 101) before you will receive less in total from your pension income.
There is one major risk in this strategy and that is the potential for rates to increase in the next two years, however rates are just as likely to go up as go down and they would have to go up by a significant amount. If you ask any annuity or pension provider for their forecast for rates over the next two years they will give you a mixed response
Therefore if you are approaching retirement age and are feeling the pinch at this time of year it is worth thinking about your retirement plan and consider whether you should take your pension benefits earlier while you continue working. Just remember you do not have to be retired to take income from your pension. If you want to talk to retirement experts, www.happy2retire.co.uk are here to help. You can call them on 0800 210 1000.