Retirement Financial Planning Services in South Wales
There has been plenty of coverage in the financial media about retirement freedom and how you can now spend your pension fund as you see fit! However, more freedom and more choices mean you now have more decisions to make.
So, do you see this as an exciting freeing up of your retirement choices and a licence to spend your money how you wish? Or are you worried about making the wrong choice? Maybe you don’t know which way to turn?
What does greater freedom mean for you? Until 19 March 2014, when the Chancellor of the Exchequer George Osborne, stood to give his Budget speech, any choice you had on how to spend your pension fund was restricted by tax law. After all, the government gave away generous amounts of tax relief to encourage people to save for a retirement income so they made sure that was exactly what you did with your money.
However, the Chancellor announced that in one hit he would remove all remaining tax restrictions on how pensioners could use their pension pots.
How do you make the right choice? Retirement freedom creates more choice; but it brings with it more risk. While the earlier restrictions may not have been popular, they did protect you from running out of money. We now live in an era in which we live longer. We are retired for longer. We need to make our savings last for longer. We can only do this if you make the right choices.
We can only make the right choices with the right advice. Retirement is changing With the demise of final salary schemes most people are taking more of a portfolio approach to retirement income. As well as traditional pension savings and the basic state pension, people are using ISAs and other investments, such as bonds, to supplement their incomes.
Also, semi-retirement is becoming more common with people continuing to work part-time in retirement either through necessity or simply because they want to. In fact, people approaching retirement expect part-time work to contribute 28% of future retirement income. (Source: Old Mutual Wealth – Retirement Income Uncovered).
Don’t pay any more tax than you have to Having spent a long time carefully building your retirement fund the last thing you will want to do is give a big chunk of it to the tax man. This is another reason why you need to plan carefully how you use your retirement fund.
Take too much out too quickly and instead of being a basic rate taxpayer, overnight you can become a higher rate taxpayer. By carefully planning with your Luna Financial planning adviser you will work out how best to use your tax-free cash entitlement so you maximise your personal allowance. And if you must draw a large sum from your retirement fund you can at least do so in full knowledge of the tax implications, so you do not get a nasty tax shock.
The value of pensions and investments can fall as well as rise, you may get back less than you invested.