Did You Know - Autumn 2007

Drawing Pension Benefits/The decision

I never know if there is a right or wrong time of the year to discuss taking pension benefits as it is a subject that does not fall into a seasonal category like making pension contributions and the end of the tax year (April). I also think that it is interesting how many describe their biggest asset as their main residence when the reality for many is that it is in fact their pension fund that holds the greatest value. This makes the decisions about retirement planning all the more important as, for many, it is a single decision that can dictate their lifestyle for the balance of their life. Many retirees will live for another 25 years from the age of 60 and therefore, the decision they are making can affect around one third of their entire life. This usually focuses the mind on the importance of any decisions made.

As we draw into the autumn months, I have detailed a checklist below of some of the issues that need to be considered:  

1. There are many options available to a retiree for their pension funds, but don't ignore the state pension which can offer good value. You can check that this is up to date before your retire by completing a state pension forecast form. If there is a shortfall then this can sometimes be increased by paying class 3 National insurance contributions. 

2. Consider what you and your spouse/partner want to achieve in retirement. This is potentially a big step and you need to consider the 'W's, Who, What, Why, When, Where!

• Who do you want to protect with your pension income and by how much?
• What income do you need and what do you desire?
• Why do you need this, what is your budget?
• When do you need the money, are there any income tax considerations?
• Where are you planning to live in retirement, will you move and will this affect your planning?

3. Take financial advice because you have many options. Speak to an independent financial adviser or a retirement specialist to ensure that you are not missing any advantages within the policy you hold or creating income tax problems for yourself in future years. As an example, some older Retirement Annuity policies contain guaranteed annuity rates that can be highly valuable in the present economic climate. This needs to be checked carefully.

4. Consider Risk. Many like the idea of a secure income in retirement and this can usually be achieved with the purchase of an annuity. However, some prefer to defer annuity purchase for as long as is possible and use, as an example, an income drawdown facility. This has greater risks and charges than an annuity, but does have other advantages, such as income withdrawal flexibility and continued investment choice. All these options need to be considered carefully before you commit your fund to your choice of retirement income vehicle.     

5. Do you need tax free cash and why? Taking tax free cash will usually reduce income, but can be a more tax efficient way of generating income and leaving benefits to the family in the long term. Think about what you want both in the short term and in the longer term. 

6. Update your will. It is likely that any children may have 'flown the nest' and that grandchildren may be on the scene. Have you amended your will to account for these changes and the effects on your estate of inheritance tax. Speak to your solicitor or legal adviser. 

7. Give yourself time. This is a big decision and needs time and contemplation. Start at least a year out from your intended benefits date. This will give time for your financial planning to take effect and to be lined up in the appropriate fashion.

Finally, you do not have to retire to draw pension benefits. Some clients maintain part-time or consultancy work into their 'autumn' years and financial planning can be a highly effective tool in using your tax allowances to your advantage to ensure that you are maximising your benefits both now and into the future. 

If you would like more information on this aspect of your financial planning then please speak to Churchouse Financial Planning on to Churchouse Financial Planning Limited on 01483 578800.

For guidance and information purposes only and does not constitute advice or recommendation to invest. The value of funds can fall as well as rise. Please seek Independent Financial Advice before proceeding with any changes/new contracts. The Financial Services Authority does not regulate taxation advice.