Magdelena Harding, specialist dental financial adviser at Wesleyan Financial Services, explains how you don’t necessarily need to access your pension when you think you should.
Many people believe in a simple equation: retirement = pension. Put another way, most people feel as if their pension has a best before date, a time by which it needs to be used by.
This isn’t so surprising, retirement and pensions are often talked about in the same breath. Of course, they are connected.
However, it may not be the case that you have to rely, at least solely, on your pension to fund your retirement. You may also be able to access your pension later than you think, while still retiring ‘on time’ or earlier. In fact, that may be the best way to maximise your pension savings.
There is no best before date for your pension
Currently, you cannot access your pension before the age of 55 (set to rise to 57 in 2028). That applies whether you are in the NHS or have a personal pension.
Although, it’s worth remembering that your NHS pension is linked to your state retirement age. So while you can choose to take funds from it when you reach 55, you will have to take a reduction in the total amount to do so.
But even though you can start using your pension at age 55 that does not mean that you have to. If you have other investments, cash savings or assets it may make more sense to utilise these in the first instance to fund your retirement.
That’s because your pension is the most tax efficient savings vehicle there is.
Lump sums can be taken out with 25% tax-free and your pension isn’t categorised as part of your estate. This means it’s not subject to 40% tax. If you don’t make any withdrawals from your pension, you can leave it all to your beneficiaries as part of your legacy.
So, if you have sufficient income to fund the retirement you want without touching your pension and are thinking about your children or other beneficiaries, this can be worth considering.
You could retire sooner than you realise
But, how do you know if you have enough income to fund the retirement you want?
The key to this, as with everything when it comes to financial planning, is to take a two-pronged approach. Firstly, begin planning early and, secondly, review your situation regularly.
You are never too old to plan for retirement or too young to start a pension. But the earlier you begin planning and building up your pot, the better.
Thinking ahead to what you want to do in retirement is a good starting point because that’s how you’ll know how much you need to have to fund that lifestyle.
Last year, the Pensions and Lifetime Savings Association (PLSA) released a report which stated that £10,900 a year is needed for a minimum retired life. This compares to the £33,600 needed for a comfortable life.
The question is, do you want an average retirement? Or do you want more?
Regular reviews are key
Whenever you begin building your pension pot, it is critical to regularly review it at least once a year. That’s because you need to make sure your funds are performing well and to check whether you’re on track to have sufficient income to achieve the retirement you want.
The closer you get to retirement, the more important that becomes.
Not just because, if you’re not on track, you may have to consider how you are going to make up any potential shortfalls. But because you may be able to retire earlier than you think.
The retired life you want
I have advised clients aged 57 who were planning to retire at 60 who, after we did a full review of the figures, realised they actually had enough income to retire straight away without compromising their standard of lifestyle.
Seeking professional help and regularly reviewing your pension is the best way to make sure you have the funds you need for the retired life you want.
With this knowledge you can make sure retirement is everything you dreamed it would be. And maybe even get there a little sooner.
You can book a no-obligation financial review with us by visiting www.wesleyan.co.uk/dental or calling 0800 316 3784.
Please bear in mind that advice in relation to inheritance tax planning is not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances and may be subject to change in future. Bear in mind that the value of investments can go down as well as up. You may get back less than you invest.
Advice is provided by Wesleyan Financial Services Ltd.
‘WESLEYAN’ is a trading name of the Wesleyan Group of companies.
Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority and is wholly owned by Wesleyan Assurance Society. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352. Fax: 0121 200 2971. Calls may be recorded to help us provide, monitor, and improve our services to you.
