Thinking of drawing down your pension?

Published by Tim Maakestad on 6 December 2022

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Retirement may seem a long way off, but planning your finances to support your retirement is essential and it is never too early to start.

Firstly, work out how much you will need in retirement by calculating the income needed to cover your basic living costs, plus the level of expenditure needed to cover your hobbies, travelling and lifestyle aspirations. You may also want to build in some surplus income to cover unforeseen expenditure or a change in your circumstances. If you have debts, ensure they are repaid or remain affordable after retirement.

Ask your existing pension provider for an up to date statement and pension projection to your chosen retirement age to check your current provision. Review the risk profile and growth potential of your pension investments to check they support your objectives.

Building your pension pot will take many years. Over this accumulation period you may be able to accept higher investment risk and benefit from the greater long term growth associated with stocks, shares and property over safer investments.

Be aware that the level of tax relieved pension contributions you can make is governed by the Annual Allowance whilst the value of pension benefits you build up is subject to a Lifetime Allowance. Exceeding either of these allowances will result in punitive tax charges and you should seek professional advice regarding your own personal situation.

It is important to understand the options for drawing pension benefits. Will you access the 25% tax free lump sum? Do you want the secure lifetime pension available from annuities or do you prefer the greater flexibilities and death benefits available through ‘Pension Freedoms’?

Whatever the answer, you need to continually review your investment strategy. As you approach retirement do you need to move to safer havens to protect your capital before taking your tax free cash or buying an annuity? Or do you need to maintain the greater long term growth potential of asset backed investment to fund your flexible pension options and reduce the risk of lost investment opportunities in retirement? And do your pensions offer the options you prefer?

Also don’t forget your State Pension. If needed you can increase your state pension by topping up your National Insurance contributions, but there are limits and this has to be done before you reach state retirement age, so visit www.gov.uk/check-state-pension to see what you qualify for before it is too late.

With various options available, contact Kreston Reeves Financial Planning Services on +44 (0)1227 768231 or complete our online enquiry form to ensure you get the right pension strategy for your own particular circumstances.

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