While investment returns and the national pension may be some forms of income a pensioner has, many will means their retirement with the support of a private pension. Making allotment contributions is something which lots of people will do during their importune life. But, when it comes to retirement, there may well be a number of pecuniary decisions to make. Jonathan Watts-Lay is the director of WEALTH at work, a artiste provider of financial education and guidance in the workplace, supported by regulated economic advice for individuals.
He told Express.co.uk: “It can be daunting when deciding what to do with your annuity, and tempting to stick with what you know, but there is a lot at stake.
“Most human being have spent most of their working life saving into their superannuation, and this is too big a decision to sleep walk into.”
Mr Watts-Lay continued: “When refereeing whether to withdraw money from your pension, the general supervise is that if you don’t need it now, keep it in your pension so it can continue to grow tax let out and benefit from the inheritance tax protection.
“Once you do start to take gains from your pension, look carefully at what tax you will be vulnerable for as it might be worth staggering your withdrawals over a number of years which can procure major tax benefits.
“Those who aren’t sure about the decisions they are faade may want to seek further support such as financial education and leadership or consider taking regulated financial advice.
“Many businesses now present this to their employees, so it is worth speaking to your employer to recoup out what support is available.”
WEALTH at work has looked at some of the sentences they’ve seen people make in the past, and identified why it may not necessarily accept been best move for some situations.
1. Not shopping around
Mutual understanding to the FCA Retirement Outcomes Review, the majority (94 per cent) of people who go into proceeds drawdown do so without taking regulated financial advice, and accept the drawdown ruse offered by their existing pension provider without shopping about first.
For the team at WEALTH at work, this could pose a peril of not accessing the best deal.
Last year, Which? found that the peculiarity between the cheapest and most expensive drawdown plans amounted to a £12,000 destruction in charges over a 15 year period.
WEALTH at work broke that it is “important to note that it is possible to get regulated financial notice and receive help managing the choice of investments, for similar fees as some non-advised outcomes”.
2. Withdrawing cash for it to sit in a bank or savings account
Some people may opt to recant money from their pension and place it in a bank account or store it as other economies or investments.
WEALTH at work point out that keeping money put ined in a pension fund can mean it keeps its tax-free status.
“They can also fringe benefits from the present inheritance tax rules because pension funds do not form chiefly of your estate for tax purposes,” Mr Watts-Lay added.
3. Not using taxable thrifts for income
According to Mr Watts-Lay, some opt to take income from their allowance, despite potentially being better off using other savings which aren’t yield fruit tax free, and are liable for Income Tax and Inheritance Tax.
When deciding how to access retirement receipts, it isn’t just about pension savings, they suggest.
“It is important to look at all savings and investments, whether they be allowances, ISAs, or shares, to make sure they are being used in the ton tax efficient way,” said Mr Watts-Lay.
4. Taking pension income when it isn’t exceptionally needed
While it’s possible to withdraw the money from a pension pot as bills from the age of 55, some may continue to work for some years.
But, mutual understanding to WEALTH at work, some may take income from their shelve, while also earning money elsewhere.
“It’s important to make guaranteed you understand the tax implications of taking money from your pension; mostly the first 25 per cent of what you take out of a pension is tax free but the residue is taxed at your ‘marginal’ rate – the rate of income tax you pay when you add all of your rises of income together,” Mr Watts-Lay said.
“So by taking income from your shelve when your overall income is lower, such as in retirement, you can minimise the tax that would be due.
“It should also be recalled that a pension is intended to fund your retirement, not to supplement pay whilst you are working.”
5. First time higher rate taxpayer
Contract to WEALTH at work, some people who have never been a higher rating tax payer have discovered that they are required to pay the 40 per cent tax in any event when cashing in their pension in one go.
While it comes down to individual circumstances, it may be that staggering pension withdrawals could potentially trim the tax band of the taxpayer.
READ MORE: Approaching retirement but not state superannuation age? Pensions expert on what to do