Peace of Mind to Enjoy Your Retirement
There have been major changes regarding how the public can access their personal pension policies over recent years, the principal one being the flexibility to shape future income streams to suit your own particular circumstances. There is no longer the need to purchase an annuity on retirement and be tied to a set income. Instead, the level of income enjoyed can be increased during the early stages of retirement and scaled back in later years, for example when the State Pension kicks in, one off "ad hoc" withdrawals can be made to fund specific projects - e.g. that holiday of a lifetime, your child's wedding. The only stipulation is that there must be sufficient funds in your pension pot to fund the withdrawals.
It is essential, therefore, that you maintain regular reviews with your Financial Adviser to ensure that you don't run down your pension pot too soon.
Deferred Benefit Pensions
Another area of pension planning which has come to the fore is the option to transfer Deferred Benefits from final salary pension schemes. The transfer values which have been quoted by the scheme trustees have risen markedly in recent years, which has made the option of transferring these benefits to a personal pension environment much more attractive, however, it is important to remember that this money may have to pay for your entire income in retirement so donít be bamboozled by big numbers.
Great care should be taken to ensure that advice is sought from a suitably qualified financial adviser to ensure that any decision made is in your best interests. Indeed, the Financial Conduct Authority guidelines remain that, as a starting point, it should be assumed that the transfer is not suitable. It is up to the adviser to show, in writing, that a recommendation to transfer is "demonstrably suitable and in the client's best interests."
We have found that clients reasons for considering the Personal Pension option are wide and varied, but some common examples include:
- The ability to access these benefits early (i.e. from age 55) without penalty. This is particularly useful for someone who is looking to retire early.
- The flexibility to shape income withdrawals to suit your own needs and timescales. For example, taking a small, regular income may allow you to move from full-time work to part-time work and, hopefully, reduce stress.
- The flexibility to defer an additional income. For example, when the deferred pension has a retirement age of 60 but you are happy to continue working and simply don't need an additional, taxable income stream.
- Death benefits. Under a standard annuity all benefits cease once you and your partner die, whether this is 5 years or 55 years after retirement. A personal pension offers the opportunity to pass an inheritance down the generations, potentially free of tax.
There is no automatic right or wrong decision regarding defined benefit transfers as each case is different and each individual has their own unique wants and needs. Our advice? Ask the scheme trustees for a Cash Equivalent Transfer Value (CETV), seek appropriate professional advice and then make a decision. Without the facts it is only guesswork and, surely, your future is too important to be left to chance.