Retirement Considerations

Pension Credit

If you have a low income, pension credit may be able to provide a boost to your state pension amount. Pension credit is an extra payment that can help anyone over 65 years old a minimum income. Pension credit is two parts; guaranteed top up and saving credit.

Guarantee credit – If you are single with a pension of a weekly income below £167, pension credit will boost you up to the £167.25. Similarly, if you have a partner, but your joint weekly income is below £255.25, pension credit will top you up to £255.25. With regards to applying for guarantee credit, the Government will check all your income which includes both basic and additional state pensions, any other income from a job, other pensions and any savings that are above £10,000.

Saving credit – This is for people who are 65 years and over and is rewarded for those who have a modest income that have saved for their retirement. It must be noted that most people who reach state pension age on or after the 6th April 2016, they won’t be eligible for savings credit. To qualify for this, you have to have an income of £140.67 per week (if single) and £223.82 (if a couple). The maximum you would be able to get per week would be £13.73 (for a single person) and £15.35 for a couple). To check you are eligible for Saving credit, please follow the link – https://www.gov.uk/pension-credit-calculator

Deferring your pension

This is something to consider if you do not need your state pension as soon as you are able to retire, especially if you are still employed (this will still be dependant on wither you have already taken out your state pension).

Deferring means that for every 9 weeks that you defer your state pension, your weekly allowance will increase by 1% and deferring for a year would mean you get your full pension plus 5.8% extra. For anyone who has reached the state pension age before 6th April 2016, you will have an increase of 1% for every 5 weeks and 10.4% for a year.

The other option for some people who reached state retirement age before 6th April 2016 is to defer taking their pension to receive the extra in the form of a one-off lump sum. After this you then will receive the standard pension.

Before you decide to go ahead with any of the options above, it is important to consider seeking financial advice to ensure you will be able to sustain a healthy income.

Employers can no longer make you retire

The choice to leave work has now become your decision if and when you take retirement. The legal age by which employers had the decision to ask employees to retire was 65 for both men/woman – however this has now been scrapped. This meaning that your employer is now unable to insist that you are to leave work to retire. For more information, please follow the link – https://www.gov.uk/working-retirement-pension-age

Sorting out your Will and Inheritance Tax

Putting off difficult decisions such as illness and death is one of the worse things you could do for your loved ones from a financial point of view. Ensuring you have a Will allows you to sort out all financials for your loved ones before you pass away – giving you peace of mind as well as helping your loved ones. Ensure your Will is kept up-to-date and any amendments are made sooner rather than later. Also going hand-in-hand with a Will would be considering getting a Power of Attorney (PoA) which is a signed legal document where someone (whilst still mentally capable) nominates someone trusted to look after their affairs if they are unable to due to a loss in mental capacity (through a stroke, dementia or accident).

Planning for inheritance tax is also something you should be considering when you become retired. This is because when you die, the Government will assess the total worth of your estate (including property, land, business, cash, investments, etc) and if it exceeds the threshold, you will be taxed on 40% of any extra when you pass away. You should consider setting some time aside to consider ways you can help your loved ones by tackling inheritance tax now – https://www.moneysavingexpert.com/family/inheritance-tax-planning-iht/

Any debts before and after death

When you pass away, anything you owe has firstly to be paid back before any assets can go to your beneficiaries. If you do, however, owe more than your assets are worth then your debts will die with you – meaning your beneficiaries get nothing but they will not be required to pay off your debt. If your inheritors are jointly responsible for the debts, then they will be responsible to make up the shortfall when you pass away. You should ensure that debts are paid off as soon as possible and you should consider seeking legal and financial advice if you are conserved over debts and this subject.

 

*Please note that the information included in this article is based upon findings generated in previous years and therefore may not apply to the current market. If you seek further information on this topic, please contact a financial adviser. This is not to be taken as advice or sales and Virtue Money takes no responsibility for any information provided within the links from this site and the information contained within these links should not be regarded as advice from Virtue Money.*

Consolidating Pensions

Most people, during their career, accumulate a number of different pension plans. Keeping your pension savings in a number of different plans may result in lost investment opportunities and unnecessary exposure to risk. However, not all consolidation of pensions will be in your best interests. You should always look carefully into the possible benefits and drawbacks and, if unsure, seek professional financial advice.

Keeping track of your pension portfolio
It’s important to ensure that you get the best out of the contributions you’ve made, and keep track of your pension portfolio to make sure it remains appropriate to your personal circumstances. Consolidating your existing pensions is one way of doing this.

Pension consolidation involves moving, where appropriate, a number of pension plans – potentially from many different pensions’ providers – into one single plan. It is sometimes referred to as ‘pension switching’.

Pension consolidation can be a very valuable exercise, as it can enable you to:

  • Bring all your pension investments into one, easy-to-manage wrapper
  • Identify any underperforming and expensive investments with a view to switching these to more appropriate investments
  • Accurately review your pension provision in order to identify whether you are on track

Why consolidate your pensions?
Traditionally, personal pensions have favoured with-profits funds – low-risk investment funds that pool the policyholders’ premiums. But many of these are now heavily invested in bonds to even out the stock market’s ups and downs, and, unfortunately, this can lead to diluted returns for investors.

It’s vital that you review your existing pensions to assess whether they are still meeting your needs – some with-profits funds may not penalise all investors for withdrawal, so a cost-free exit could be possible.

Focusing on fund performance
Many older plans from pension providers that have been absorbed into other companies have pension funds which are no longer open to new investment, so-called ‘closed funds’. As a result, focusing on fund performance may not be a priority for the fund managers. These old-style pensions often impose higher charges that eat into your money, so it may be advisable to consolidate any investments in these funds into a potentially better performing and cheaper alternative.

Economic and market movements 
It’s also worth taking a close look at any investments you may have in managed funds. Most unit-linked pensions are invested in a single managed fund offered by the pension provider and may not be quite as diverse as their name often implies. These funds are mainly equity-based and do not take economic and market movements into account.

Lack of the latest investment techniques
The lack of alternative or more innovative investment funds, especially within with-profits pensions – and often also a lack of the latest investment techniques – mean that your pension fund and your resulting retirement income could be disadvantaged.

Significant equity exposure
Lifestyling is a concept whereby investment risk within a pension is managed according to the length of time to retirement. ‘Lifestyled’ pensions aim to ensure that, in its early years, the pension benefits from significant equity exposure. Then, as you get closer to retirement, risk is gradually reduced to prevent stock market fluctuations reducing the value of your pension. Most old plans do not offer lifestyling – so fund volatility will continue right up to the point you retire. This can be a risky strategy and inappropriate for those approaching retirement.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.
*Please note that the information included in this article is based upon findings generated in previous years and therefore may not apply to the current market. If you seek further information on this topic, please contact a financial adviser. This is not to be taken as advice or sales and Virtue Money takes no responsibility for any information provided within the links from this site and the information contained within these links should not be regarded as advice from Virtue Money.*