If you’ve recently turned 50, you may only be a few years away from starting to claim your private pension. Or, you might have chosen to continue working and saving until you reach State Pension age (currently 66, but check the State Pension Age timetable or use the Government’s calculator to work out the exact age you’ll be able to claim).
Choosing when to retire and start to draw on your pension savings is a big decision, you need to balance your hopes for a particular lifestyle in your later life with the reality of your existing savings, and the potential for a decades-long retirement. Thanks to incredible advances in healthcare we’re living longer than ever before, meaning retirements are increasingly longer than anticipated and this can put a strain on your finances if not planned and prepared for.
Private pension age to rise in 2028
The current age at which you can claim your private pension is 55, however from 2028 this will rise to 57, in line with the State Pension age, which rises to 67 the same year. This is due to rising life expectancy, resulting in longer retirements than ever before. For example, a 65 year old man now has a 50% chance of living to 87, while a 65 year old woman has a 50% chance of living to the ripe old age of 90, meaning that for many, retirement could span thirty years, or even longer.
The government is currently consulting on the planned change, however it has been suggested that each pension scheme could decide when to implement the age rise, resulting in some schemes increasing the minimum age even sooner.
This will need to be a key consideration for anyone nearing the normal minimum pension age (NMPA), and should be factored into your retirement plans. Especially where combining multiple pension pots is concerned, as it may be that some schemes raise the age sooner and you could risk moving funds from a scheme with a minimum age of 55 to one at 57.
Saving for retirement in your 50s and 60s
With retirement starting to peek over the horizon, now is the time to make any changes to your pension plans so that you’re prepared when the time comes. And if you’re hoping to retire soon, then you’ve also got some big decisions to make.
- Check your State Pension forecast
It’s a good idea to have a clear picture of how much State Pension you’ll receive, and when, so use the Government’s State Pension forecast tool to find out. Be aware, you won’t be able to use this service if you’re already claiming or have deferred your State Pension.
- Combine your pension pots
By this stage, it’s likely you’ll have a few different workplace pension pots from past jobs. Combining them could make your life easier in retirement, as you’ll just have the one company to deal with. However, you need to be aware of differences with each pension, for example, income options, minimum access age, fund charges and benefits. There’s a lot to consider. We can help you with this.
- Maximise your tax benefits
If you’re a higher-rate taxpayer or you pay additional rate tax, your pension savings are even more tax efficient, so now’s the time to increase your savings in preparation for the day you leave the workforce. You may want to consider increasing or starting a regular savings plan, or making a one-off payment to top up your existing pot. Bear in mind that there is an annual pension savings limit for most people, as well as a lifetime allowance, and you’ll be taxed on any excess above this threshold.
- Assess your other assets
If you have money in ISAs, unit trusts or other investment accounts, it could be financially beneficial to move this into your pension. We can take a look at your assets and advise on the tax benefits in relation to your personal tax circumstances, and help you to decide if this is the best option for you.
- Review your investment choices
You may wish to adjust your appetite for risk as retirement nears, as well as the type of income you’d like to generate. Some pension schemes automatically begin to move your savings into lower risk funds as your retirement date approaches, but it’s still a good idea to review your options in relation to risk at this point.
- Make a decision on your pension income
If you’re planning to retire in the not-so-distant future, it’s time to consider your income options and make some big decision. There are several options to choose from, but the main three are income drawdown, withdrawing a tax-free lump sum (up to 25%), and annuity (guaranteed income). We will help you to understand the implications of each and choose the best option for your chosen lifestyle and individual circumstances.
Retirement can be a daunting prospect, but it doesn’t have to be. If you’re unsure about how you’ll manage financially in retirement, or which pension scheme is the best choice for you, we can help. Get in touch with us to discuss your existing pension provision and see how we could help you to maximise your pension income and achieve your dream of a comfortable retirement.
Remember that the value of investments can fall as well as rise, so you may get back less than you invest. This information is not a personal recommendation for any particular product, service or course of action.