Now is the time to put pension plans in place

THE New Year is the ideal time to make plans for the future and laying the groundwork for a comfortable retirement will be top of many people’s to-do lists.

Even if you have already retired you should check your plans are still on the right track and your pensions and investments will continue to provide enough income in the years ahead.

The over 55s have been liberated from the obligation to buy an annuity at retirement but experts warn that pension freedoms have increased the risk of paying too much tax or falling victim to scammers.

Getting it right now could make the difference between retiring in comfort or struggling in later life.

MAKE A LIST

Jonathan Watts-Lay, director at retirement advisers WEALTH at Work, said your first step is to list all your workplace and personal pensions, investments and savings, and calculate how much retirement income they are likely to deliver.

“Then work out how much you are going to need to meet your day-to-day living expenses, with some left over for hobbies and holidays,” he added.

Do not assume your retirement spending will be the same at every stage, it tends to follow a ‘U’ shape, he said.

“The early years are often most expensive, when people are active and keen to use their free time. Spending then dips as people slow down then rises again if they need care in their final years.”

People live longer than they expect, and need to make sure that income lasts as long as they do, so be certain you can really afford to retire, Watts-Lay added. “Maybe you need to work a little longer, or perhaps take a part-time job,” he said.

CASHING IN

You can take your pension either as a cash lump sum, by locking into an annuity or opting for income drawdown, which involves leaving your pot invested and taking money as you need it.

You are not restricted to one but could choose a combination of these options, Watts-Lay added.

“Ask your employer what support it provides, visit PensionWise.gov.uk or consider independent financial advice.”

Beware the danger of paying too much tax on pension withdrawals. “The first 25 per cent you take is free of tax, but the remaining 75 per cent is taxed as earned income. You could find yourself paying more tax than necessary unless you plan carefully.”

If you take a single sizeable withdrawal in one year it could lift you into a higher tax bracket, costing thousands. “It may be more tax advantageous to take smaller sums every year, then top them up with withdrawals from your tax-free Isa,” Watts-Lay said.

GET SMART

Beware of scammers who target people coming up to retirement, stealing around £1 billion a year from savers, according to the Pensions Administration Standards Association.

Crooks often use professional looking websites and marketing literature to fool people.

Financial Conduct Authority (FCA) executive director Mark Steward urged savers to reject unexpected pension offers whether made online, on social media or over the phone.

Check if any company you are dealing with is registered with the FCA at Register.fca.org.uk or call its contact centre on 0800 111 6768. Also check out the FCA’s ScamSmart website.

Don’t be rushed or pressured into making any decision, Steward said. “Scams are often very sophisticated and difficult to spot, and target people from all walks of life and with any size pension.”

LIVING LONGER

Andrew Tully, pensions technical director at Canada Life, said people are increasingly working part-time to top up pensions.

“As people live longer their pension income may have to stretch for 20 or 25 years, so you should check your position regularly, to make sure your plans are still on track.”