WHAT TO CONSIDER IF YOU INTEND TO TAKE MONEY OUT OF YOUR PENSION
THE pension freedoms have given over-55s much more flexibility over how they use their pension pots. But those taking money out need to make sure they don’t make unwanted dents in their retirement income, whether it’s by paying more tax than necessary, falling victim to a scammer or making ill-judged investment choices.
To help avoid this, finance specialists WEALTH at work here outline five things to think about:
Understand the tax implications
Ultimately, tax planning should be at the heart of any transaction, as people could find themselves paying more tax than they need to if they don’t plan carefully.
Understand how long retirement savings may need to last
BEFORE accessing retirement savings, it is crucial to think about whether there’s enough money to last the duration of retirement. Many people live longer than expected, so remember this when doing the sums.
Know the risks around defined benefit (DB) pension transfers
DB schemes promise savers certain levels of income in retirement, based on their salary.
But they are not part of the pension freedoms. There have been concerns around the numbers of people wanting to transfer from DB pensions to defined contribution (DC) schemes, which do have the freedoms. Many people would be worse off by giving up their valuable DB benefits.
Pension transfers are complex – there are many factors to consider before coming to a decision, including whether the transfer value being offered is good value. Regulated financial advice must be sought to transfer a DB final salary pension if its value is £30,000 or above.
Pension scams
MANY scams look legitimate so are not easy to spot. Others offer investment returns which are ‘too good to be true’ but people easily get sucked in. They often have very professional looking websites and literature. More help is available on the Financial Conduct Authority’s ScamSmart website.
Regulated financial advice can be better value than no advice
MANY people don’t realise that when they buy retirement products, there can be charges deducted which can cost just as much, if not more, than getting regulated financial advice.