If you’re over the age of 50, you’ve probably been contributing to a pension for many years and you may be looking forward to the day when you can finally retire and live off all your pension savings.

However, there’s a lot to think about when planning to withdraw money from your personal or workplace pension. It’s a huge decision because it can have major implications on how long your pension pot will last for your retirement.

If you prefer to listen to a podcast summary of the 5 things to consider, please scroll to the bottom or click here

When Can I Start Taking Money From My Pension?

Currently you are able to start taking your pension from the age of 55, but unless your private pension plan has a protected pension age, the normal minimum pension age (NMPA) is rising to 57 from April 2028. This is being done to coincide with the rise of state pension age to 67.

Once you’ve reached these ages, you can start accessing the money in your pension fund in a number of different ways, e.g:

  • take your pension savings as a single cash lump sum

  • take it as a regular income

  • a combination of a smaller lump sums alongside a regular retirement income

If you have a defined contribution pension pot you can use the funds to purchase an annuity (a regular income for life) or to take a cash lump sum, depending on the specific terms of your plan.

The first 25% of your pension drawdown is tax free, then remaining pot is treated as taxable income.

There are always some exceptions that entitle you to access your pension earlier (for example ill health), but you may have to pay higher fees to your pension provider.

It’s also important to understand the specific tax rules that apply to your pension and to consider how withdrawing money from your pension pots will affect your overall tax situation especially if you are in a higher tax bracket.

1) Pension Freedoms

The pension freedoms are a set of rules introduced in 2015 that give individuals more flexibility in how they access their personal pension savings.

You can now do a lot more with your pension pots than previously, but everyone is different and it’s important to find the right solution for your circumstances and what risks you are willing to take.

To find out more about Pension Freedoms, visit my more in depth article: Pension Freedoms Rules and Options

2) Savings Requirements

Consider how much retirement income you will need each month to maintain your desired lifestyle.

Ask yourself:

  • How much do I need?

  • How much might I get?

  • Do I still have a mortgage to pay off?

  • Do I still have a mortgage to pay off?

  • What other sources of income do I have?

  • Do I need my pension to keep up with inflation?

  • Could I consider working for longer?

  • Do I want to have annual holidays?

Our free pension calculator can give you an estimate of your retirement income:

Pension Calculator

3) Costs Later In Life

Think about costs later in your retirement. What will your living costs be in the future?

Care needs are not a subject we are comfortable thinking about. Healthcare can be a significant expense during retirement, especially if you have any chronic health conditions.

It’s very important to have conversations about this with your family, as well as powers of attorney, wills and inheritance tax planning in place.

Take a look at these related articles for more information:

Wills: What is a will and why do you need one?
Powers of Attorney: Lasting power of attorney
Inheritance Tax Planning: How to avoid inheritance tax and leave a legacy for your family

Take the time to consider all of your likely expenses and to create a budget that takes them into account. Our free budget planner can help you with this exercise: https://ttwealth.co.uk/free-budget-planner/

Budget Planner

4) Health and Life Expectancy

We often vastly underestimate this, but evidence shows we are mostly living longer, with a growing variation in healthy life expectancy.

In 1950 10.83% of the population in the UK were aged over 65.

By 2018 this had increased to 18% (11.9 million UK residents) and by 2050, this figure is projected to reach 17.7 million / 24.77%.

Those aged 85 and over are likely to be the fastest growing age group.

graph showing population growth in over 65s

Does your pension pot provide a guaranteed income for life?

If you have a partner, do you need to provide for them financially after you die?

Or are you relying on them for your retirement income? What happens to their / your pension pot when you die?

It’s important to be aware of your potential life expectancy when planning for retirement, but remember that life expectancy is just an estimate and it can vary significantly from person to person. It’s therefore a good idea to save as much as you can for retirement, even if you think you may have a shorter life expectancy.

5) Obtain Professional Advice

A few of us may expect to give up work altogether in our fifties, but a growing number of us are dipping into our pension before our normal retirement age.

Before we get into the different ways you could withdraw money. There are some more general things to think about first.

And they include asking yourself:

  • How long will I need my money to last?

  • How long do I want to keep working?

  • How much tax might I pay?

  • Could, my health and lifestyle affect what I get?

  • How much do I want to leave behind?

Finally, a word of caution re pension scams.

Pension scams are fraudulent schemes that can target people who are looking to access their pension. These scams can take many different forms, but they often involve promises of high returns or other incentives to encourage you to transfer your pension to a new pension provider.

Scammers may use a variety of tactics to convince you to transfer your pension, such as cold calling, unsolicited emails, or online adverts. They may also use high-pressure sales tactics or try to rush you into making a decision.

If you are considering transferring your pension, it is important to be cautious and to thoroughly research any company or individual you are considering doing business with. Be especially wary of anyone who:

  • Pressures you to make a decision quickly

  • Claims to be able to unlock your pension

  • Asks you to transfer your pension to a scheme that is not regulated by the financial authorities

To watch a video about pension scams, please click the below:

In Summary

Deciding to access your pension early, or make other pension choices like pausing / canceling your pension contributions are big decisiosn that shouldn’t be taken lightly. Be sure to consider all of the factors involved and as always, seek advice from an independent financial adviser before making any major decisions about your finances.

If you would like to discuss your pension options, get started with a free introductory 30 minute call:

Listen To The Podcast

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