Do you need advice?

In my opinion, it is highly likely that you will need some advice if you are preparing for retirement and wish to make the best of you retirement savings. The purpose of this article is to highlight some of the areas that you should consider and research, so that you can prepare properly for any advice sessions.

A good starting point is to familiarise yourself with the options and possibilities under the new rules. These range from taking all available tax free cash and using the remainder of the fund to purchase an annuity with its secure income, through leaving most of the fund invested and drawing a small income and on the other extreme of taking all the fund as cash and likely paying a large tax bill. The key is not to make a quick decision. Some options can't be reversed once selected, so ask your pension provider or administrator, if in an employer's scheme, what choices are available in your scheme well in advance. You should also ask the provider if any benefits would be lost eg Guaranteed Annuity rates or if any penalties would apply if you were to transfer to another scheme. You should also consider the amount of tax you will pay when withdrawing various amounts from your fund.

The next thing you might consider is your financial objectives in the short term and the long term. Examples: do you have debts you wish to repay? Are you intending to continue with some paid work so don't require a large income from your pension? Do you have other income? Do you want a stable income or one with increases to cover inflation. Do you want a high income for a short period as you wish to enjoy the early years of retirement? Do you want to minimize tax payments? Do you want to leave some or all of your fund as a legacy?

If your fund is remaining invested, you will have to decide what types of investments to make. Are you going to choose managed collective funds or pick shares and bonds yourself? Taking into account your financial objectives, are you going to be drawing out the whole value of your fund over a short period or looking for growth? This objective will have a bearing on your investment selection as some investments are suitable for the short term and others for the longer term. If you decide to draw a substantial proprotion of your fund early in retirement but leave the remainder invested then splitting the fund into a cash element and longer term investment would be an option to consider. Your present pension might not provide the investments or flexibility that is required for your objectives, so you may have to move it. If so you should find out how much this will cost.

After going through the above stages you might be confident that you can proceed on your own, but otherwise you can contact an adviser with a clearer picture of your objectives and the areas that you are unsure about.

Don't make a colossal tax blunder!

It is important to realise that 75% of withdrawals from a pension fund are added straight on to your income for the year for tax purposes. That means that someone earning 30k next year (based on the projected tax bands) would pay 27.5k tax from a 100k fund and on top of this they would have removed their funds from a tax exempt environment.

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