HOW TO... invest in retirement

1 REVIEW YOUR PENSION INCOME PLANNING

The new income flexibility and greater inheritability of pension wealth could see conventional wisdom on retirement income planning flipped on its head. Under reforms from 6 April it could pay to retain pension savings within the pension wrapper and take income from other investments first

2

AVOID A TAX SHOCK

Stripping out your pension fund in one go is tempting, but it will mean an entire retirement’s worth of income tax liability is shoe-horned into a single tax year. Tax allowances may be wasted and it could result in an income tax bill higher than the tax relief when contributions were paid.

3

SPREAD YOUR INVESTMENTS

It pays to save across a range of different investment tax wrappers after maxing out your pension and Isa. Each tax wrapper has its own particular tax characteristics and a combination of each can provide flexible tax-efficient income. The ability to turn income up and down as required can be the key. For example, stopping pension income for a particular tax year and instead taking withdrawals from other investments, can reduce the overall tax payable by utilising tax allowances which, in turn, can lead to reduced rates of tax.

4

MAKING IT LAST

Investments that may have served you well in building up your pension might not work so well in retirement. If you suffer some bad investment years in the accumulation phase, you have time to recover. You can retire later perhaps, or add more money to the portfolio. However, once you are ready to retire, it is often not possible to go back to work or rely on other assets should you be unlucky.

5

TAKE THE LONG VIEW

What happens early on in retirement has a huge impact on how long your pension lasts. Don’t chase high returns from the outset and risk losing money. The traditional low-risk approach is to lean towards fixed interest (such as gilts and corporate bonds) and cash. But whether fixed interest remains the safe haven it has historically been isn’t certain, as interest rates are only likely to go up. Further up the risk scale, a traditional medium risk/ balanced approach that often features high exposure to equities could potentially expose you to volatility and short-term losses. An investment approach that seeks to manage risk by actively reducing volatility and generating sufficient returns is likely to be the most reliable and sustainable.

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Kevin Garfagnini is director of Mazars Financial Planning in Scotland