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AROUND 17-and-a-half million people have a defined contribution (DC) workplace pension. With this type of pension, savings are built
WHILE pensions tend to be a central part of people’s retirement plans, there are other ways to save or release cash. Moneyfacts.co.uk has looked at what else is out there, which may help savers diversify their retirement savings in the years to come.
Some options may have pitfalls though, so it’s important to take time and seek financial advice to decide what’s right for you.
Rachel Springall, a finance expert at Moneyfacts.co.uk, says that, to supplement their pension savings, some people may open a savings account. “However, for a home owner who is soon to retire and facing a retirement shortfall, equity release may be worth careful consideration,” she adds.
Here Rachel outlines some potential options...
LIFETIME ISAS (LISAS)
LIFETIME Isas help savers build a nest egg for their first home or retirement. Savers can put in £4,000 each year until they turn 50 and the Government adds a 25% bonus. A Lisa can be opened by savers aged between 18 and 39. There is usually a penalty to access
up through a combination of your own and your employer’s contributions, and the returns on investments made by the scheme that manages your savings. The funds other than for buying a first home or retirement.
This has been temporarily lowered due to the coronavirus pandemic, so savers should generally get back all the money they put in, subject to any investment losses incurred if the Lifetime Isa is invested in stocks and shares. The withdrawal charge will return to normal levels in from April 6 2021.
EASY ACCESS ACCOUNTS
PAYING in a bit in each month can help boost a retirement fund. Saving just £100 a month for the next 25 years could build a pot of £30,000, excluding interest.
Government also contributes through tax relief.
You might be considering opting out, but think very carefully about how this will impact your income in retirement. Opting out means you will no longer receive the benefit of contributions from your employer.
You may be worried about how recent falls in the value of the stock
NOTICE ACCOUNTS
CHOOSE a notice account for a higher return than on an easy access account. So long as savers give the required notice period, they can access their cash without penalty. Challenger banks (smaller, newer banks) tend to reign supreme in the top rate tables in this sector.
FIXED RATE BONDS
UNLIKE easy access and notice accounts that allow savers to put in regular sums and gain access to funds in the short-term, fixed rate bonds tend to be more restrictive. But savers often achieve a higher rate of interest.
CASH ISAS EQUITY RELEASE
THOSE about to retire who face a pension shortfall may consider a lifetime mortgage to release equity from their home.
These should be investigated carefully as there will be consequences for inheritance planning. Seeking independent financial advice will help you decide if this is right for you.
market impact your pot. But bear in mind that financial markets have recovered from shocks in the past.
It’s worth noting that the contributions you and your employer make to your pension now may buy a greater number of shares at a cheaper price. And professional investors managing your workplace pension pot may have already acted to position your investments, so they’ll be ready to benefit from an eventual recovery.
Also, remember DC pension savings benefit from a range of protections if companies looking after them get into trouble.
THIRDLY, there’s the state pension, which is paid by the Government. The amount of state pension you will receive is based on the number of years you work or undertake specific caring activities such as bringing up children.
REMEMBER that if you give up pension saving, your family could miss out on valuable death benefits which are tied to your scheme.
With pensions, as with wills, it’s also worth checking your nominated beneficiaries have been updated to reflect your wishes and family circumstances.
On another note, for people in a defined contribution scheme who are close to retirement, it may be necessary to take stock of when you plan to retire and how much income you can expect to have. Consider getting free Government advice from the Pensions Advisory Service or Pension Wise.
Julian adds: “Seek guidance or financial advice if you are unsure what to do.”
■ Finally, be wary of criminals who may try to scam you out of your pension. Be particularly careful of cold calls asking for your pension information or offering you unusually high investment returns or urging you to act by a short deadline.
If you suspect something is a scam, report it to Action Fraud.