Post-retirement planning is a key component of a healthy financial portfolio, and the market has changed significantly in recent years following the introduction of Pensions Freedoms. This means that consumers can now enjoy access to a more flexible and varied range of options.
Our specialists at TR Wealth will help you to navigate this minefield with informed guidance on all aspects of post-retirement planning. We offer advice on how to invest wisely in order to live your chosen retirement lifestyle, manage risk and make the most of your income. After all, the last thing you need when you’ve worked hard for decades is to scrimp and save throughout the post-retirement years.
Annuities are a more traditional retirement planning option.
When you retire, and your pension matures – or if you have taken your pension benefits early – you will need to decide how best to utilise your pension fund. One possibility is to opt for an annuity.
- Provides a regular income in exchange for the proceeds of a maturing pension fund.
- You can take up to 25% of the pension fund in a tax-free lump sum (the rest must be converted into an annuity).
- Pays out the income until you die.
- The amount the annuity pays out depends on the size of the pension fund, the amount of tax-free cash you take and interest rates, among other things.
Our advisers will ask some key questions to determine achievable income levels with your annuity and the most appropriate choice for your situation to consider your age, health and other factors. This may depend on whether you are looking for a fixed income or income that rises every year, and whether you are in ill-health (in which case an alternative option may be more suitable).
There have been a number of retirement planning options that have emerged more prominently over recent years, including Flexi-Access Drawdown and Uncrystallised Funds Pension Lump Sum (UFPLS). It’s also important for savvy retirement planners to consider the benefits of phased retirement.
Flexi-Access Drawdown (FAD)
This type of drawdown pension allows you to place your pension funds in a drawdown plan. After the age of 55, you can withdraw as much (or as little) as you want over any period.
Up to 25% of the fund can be taken as a tax-free lump sum when it is placed in drawdown
Any income will be taxed as pension income
You have the option to make further pension contributions, but certain circumstances may warrant a reduced annual allowance for future contributions to defined contribution plans (the Money Purchase Annual Allowance)
This option is popular for its great level of flexibility where you have full control over your own strategy, including any underlying investments, to provide a sustainable income throughout your retirement.
Drawdown also gives you the freedom to leave your pension savings to others as part of your estate planning process. You also have the possibility of taking the remaining value at any time and purchasing an annuity.
Our experts will offer insight in the terms and conditions of this type of drawdown plan, including the tax situation, the importance of annual reviews, when and if you should purchase an annuity and what happens to your funds in the event of your death.
We will also help you to determine the level of risk you are willing to take and the level of flexibility you would like with your post-retirement options, allowing us to identify and provide the most appropriate and cost-effective solutions.
Uncrystallised Funds Pension Lump Sum (UFPLS)
This option allows you to withdraw some or all of your uncrystallised pension fund as lump sums without the need to move the funds into a drawdown plan or purchase an annuity.
25% of the fund may be taken tax-free (or 25% of each payment of UFPLS if less than the total fund is withdrawn) with the balance of 75% as taxable income. You also have the possibility of taking any remaining funds at any time and entering them into Flexi-Access Drawdown or purchasing an annuity.
Different pensions offer different levels of flexibility with regards to a UFPLS. That is why it’s important to undertake a full professional analysis and identify the most viable course of action. An expert will also be able to ascertain whether you are eligible for a UFPLS with potential considerations including your age, health, and the value of your remaining lifetime allowance.
Should you wish to avoid taking all the benefits from your personal pension in one go, Phased Retirement offers a process that ‘crystallises’ your pension fund in stages. This can be done using annuities (Lifetime, Investment Linked or Fixed Term) or your drawdown pension by establishing a series of small income streams every year.
Uses a part of the accumulated pension fund each year, in particular, the tax-free cash amounts, for income purposes (this may create a highly tax-efficient income stream);
Remaining fund continues to be invested under pre-retirement rules for death benefits, which are more tax-efficient than post-crystallisation rules;
Conducted through sophisticated encashment processes or by breaking down the pension fund into a number of segments
This process continues until your entire pension fund has been crystallised, and you may continue to make contributions to your plan to build up future pension income during this period.
Making the Right Decision
Our team will help to determine the most effective retirement planning options for your current circumstances with the aim to strike a healthy balance between growth, income and estate planning to help you enjoy the best possible standard of living in the long-term with regular reviews to adjust to your changing circumstances until you retire.
If you already have retirement plans in place, we recommend regular reviews to ensure ongoing suitability for your chosen options. We will take economic and personal factors into account, including inflation, product availability, performance, health and estate planning to ensure that your chosen retirement solution model continues to perform for optimum results.