Perfecting Your Pension

January 17, 2020
Taryn Lee-Johnston

Even though there are plenty of ways you can potentially save for your retirement, saving via a pension scheme remains one of the most common, especially for those in employment, who now have to be automatically enrolled into a pension scheme unless they actively choose to opt-out.  If you’re one of the many people currently saving into a pension, here are some points to remember.

Remember that the state pension still exists

On the one hand, there is really no guarantee that the state pension will continue to exist in the future.  On the other hand, it does exist in the present and it could be worth considering whether or not to incorporate that fact into your retirement planning.

For example, if, for whatever reason, you have not paid National Insurance for a long time and have relied exclusively on saving for your retirement out of your own private funds, then you may not feel it is worthwhile to start “filling in” your “missing” contributions.  On the other hand, if you’re only slightly short of the money you would need to have a state pension (or to increase the level of state pension to which you would be entitled if current rules continue to apply), then you might want to consider making voluntary contributions.

If you’re working and paying NI because you have to, then you will automatically be building up your entitlement to a state pension (assuming it continues to exist) and might want to think about how to use your entitlement to its fullest advantage, for example, you might want to delay taking your pension so as to receive a higher level of income when you do claim it.

Remember that there is still a case for annuities

Annuities are, basically, products which guarantee an income, in the context of pensions, usually for the rest of your life.  Like all financial products, they have their advantages and disadvantages and are better choices for some people than for others.  Buying an annuity may be the right option for you if you value simplicity, especially if you have a smaller pension pot.  The less money you have to invest, the harder it will be for you to generate an income off which you can live and the more at risk you will be if the value of your investments goes down instead of up, as can and does happen.

Remember you do not need to use all your pensions savings at once

Retirement age is the age at which you can access your retirement savings, but just because you can do something doesn’t mean that it is necessarily the right thing to do.  If you have only been able to make minimal retirement savings, but are still fit, healthy, able (and possibly willing) to work (at least in some capacity), then it may be to your long-term benefit to carry on working for as long as you can (or at least are happy to do so), in order to maximise your income when you do decide to draw on your retirement savings.

On a similar note, even when you do decide that the time is right to start accessing your pension fund, you do not necessarily have to access it all at once.  In fact, unless your plan is to use your pension pot to buy an annuity, it may be much more advantageous (from the perspective of tax) to access it a bit at a time, especially if you wish to withdraw cash.  As always, however, it is very much advisable to take professional advice on this.  At the very least, familiarise yourself with the tax rules in force at the time you wish to access your pension pot in whatever manner.

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