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Is this the best time to take money from your pension scheme?

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Summary

Invest in your pension for the longer term

2 min read

Although you could start taking your pension benefits from 55, ‘could’ is not the same as ‘should’. 

Take a look at the big picture

When the time comes to take your pension it’s important to step back and take a wider look at your overall financial position. It’s also a good cue for you to review your pension investment strategy and know what implications this may have for you individually.

It is important to take a holistic approach before making any decisions. Pensions can be complex and in some cases the decisions you make can’t be undone. Making sure you get it right at the outset is imperative.

As long as you have an income that can be drawn from other assets – for example, income from rental property or investments – you can consider leaving your pension benefits untouched to allow time for your funds to grow until you need them.

“It is important to take a holistic approach before making any decisions.”

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What should you consider when you finally retire?

It’s increasingly rare for people to have a set retirement date. In fact, it’s not uncommon for many professionals to continue working in some capacity for 10-15 years beyond their intended retirement age.

Importantly, this is not always because of financial pressures. With people living longer and in better health it’s more a matter of ‘keeping the grey matter active’ over the years when they are still feeling energised and not at all ready to step back from the world. 

Many of our clients choose to take multiple non-executive directorships or pursue a passion in a business without the same financial pressures that have driven their careers so far. These options can see them continue to earn even if they describe themselves as ‘retired’.

Options you might consider are:

 

  • putting off taking your pension in the initial years
  • phased withdrawals that match your changing needs and income
  • consolidating diverse pension plans into a single scheme, while giving full consideration to any costs or fees

 

What about the Lifetime Allowance?

An important consideration for many Adam clients is the Lifetime Allowance (LTA). This is the maximum amount that you can draw from your pension fund without triggering an additional tax charge. This is currently £1.03m for the 2018/19 tax year.

Over the long period of investing that typifies pensions you could accumulate this level of benefit without noticing, particularly if you have a mix of workplace pensions and personal pensions. In these circumstances it’s important to understand what options are available and what is best for your individual circumstances. 

 

Investing in a long-term future

Ultimately, you should see your pension investments as just one aspect of a long-term wealth management plan.

At Adam we understand that our clients seek to maintain their wealth over the long term. Pensions are a great way to invest for your future and should be a part of everyone’s financial planning. When you’re approaching the age that you can start making use of your pension investments, we would urge you to seek advice from qualified professionals before making any decisions.

Tax reliefs referred to are those applying to UK residents under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Key Takeaways

The role of pension plans is adapting to people now living and working longer. As an increasing number of people now work past the traditional retirement age this can delay the dependence on pension income for a number of years. It is important to take a holistic approach when reviewing your overall financial position and where pensions fit into that equation. Pensions can be complex and you should seek professional advice if you are unsure about the right solution for you. 

About Adam Financial Planning

We help our clients to align their finances to current and future, personal or business needs. We take advantage of current market opportunities spanning tax efficient products or services. As a recognized Corporate Chartered status business, you can have confidence that you are dealing with qualified professional practitioners who provide a high quality of financial planning advice.

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