In retirement your income from employment or self-employment may be replaced by an income from your pension.
Currently this could be done by using your pension fund to purchase an annuity from an appropriate annuity provider, securing you an income for life, no matter how long you live.
Alternatively drawdown is an option which may appeal to experienced investors. This allows you to take an income from your retirement fund rather than buying an annuity, but due to the risks involved you will need to take specialist advice.
In his 2014 Budget, the Chancellor announced far-reaching reforms of pensions which would be implemented in April 2015 and which will change retirement planning significantly. The Government is consulting on many proposals including the following;
- Allowing full access to defined contribution (DC) pensions (including small pots and trivial pensions) within an individual’s lifetime allowance from age 55, subject to their marginal rate of Income Tax. It will still be possible to take up to 25% of the pension fund as tax free cash.
- Raising the minimum pension age from 55 to 57 from 2028 and thereafter linking it to 10 years below the State Pension Age.
These proposed changes are good news for pension savings in that they remove most of the concerns many people have about the inflexibility of pensions. More flexibility means that advice to ensure that your retirement savings are not exhausted and they meet your needs for life will be more important than before. The right type of advice can make a huge difference and it is important that you make the appropriate choices for your specific circumstances.
The value of an investment will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.