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6 Tips To Protect Your Retirement Income

With life expectancy increasing year by year, people are experiencing longer retirement periods. As a result, their pension pots need to be robust and healthy to manage this longer lifespan and any unforeseen events.

Below we have shared 6 tips to help keep your pension pot healthy for the long term.  

  1. Minimise tax

The way you take benefits from your pension can affect the amount of tax you pay, so it’s important to carefully consider what action to take before withdrawals.

You are typically allowed to take up to 25% of your overall pension pot tax-free; you may decide to keep the remaining amount invested, or receive a taxable income from it. If you decide to take out all the money from your pension in one go you will be charged Income Tax at your highest marginal rate on the remaining 75% of your pension pot.

New pension rules introduced in 2015 mean that, once you turn 55, you are entitled to take as much cash out of your pension as you want. However, withdrawing a large lump sum from your pension could mean you pay more tax, so you should ensure you know how much tax you will have to pay before you take money out.

Keep in mind that you could also pay income tax on your wages from employment, Government pension and some other income which, when combined with your pension withdrawal, could push you into the upper tax brackets. 

  1. Defer your State Pension

The maximum State Pension you can begin claiming under current regulations is £159.55 per week. However, retirees should remember that you can defer their State Pension and get a higher income if you claim it later in retirement.

For someone who has adequate earnings or savings to live off in the meantime, delaying the State Pension can be appealing because the benefits can really add up. For instance, your pension will rise by 1% for every nine weeks that you defer taking your State Pension, which comes to just under 5.8% for every full year you delay claiming it.

Pensioners looking to defer their State Pension should always seek appropriate advice as deferring could affect other areas of financial planning and some other welfare benefits.  

  1. Top up your pension before legislative changes

There is still uncertainty as to whether the government will reduce pension tax reliefs and allowances in an effort to cut public spending over the next few years. Therefore, if you’ve have time to go before retirement, you should think about increasing your pension saving, so that you can benefit from current rates of tax relief to secure a higher income when you finish work.

If you’re a basic rate taxpayer, you will receive 20% tax relief on any pension contribution, which will automatically be added to your pot. If you’re a higher or additional rate taxpayer, you can claim an extra 20% or 25% through your self-assessment tax return. It means that a pension contribution of £4,545 can cost a top-rate tax payer as little as £2,500. 

  1. Have you considered enhanced annuity?

If you smoke, or have health problems, then you should consider looking into an ‘impaired life annuity’ or ‘enhanced annuity’. These annuities provide more income than a normal annuity, as payments reflect your reduced life expectancy. Annuity companies see you as someone they will have to pay out to for a shorter period and are therefore willing to pay more each year.

This enhanced annuity pays you a guaranteed income during retirement which is guaranteed for the rest of your life.

  1. Rent Your Assets

The personal tax allowance, introduced in April 2017, which can net people up to £1,000 tax free from letting out their land and property should be a consideration in your retirement plans. Due to technology and the rise of companies like Airbnb and car space rental firm JustPark, there is a new avenue of income for homeowners with demand growing year by year. 

  1. Consolidate your pension pots

If you have several pension pots with different providers, it may be prudent to combine them and manage under one provider. This makes it easier to track the total performance of your pension portfolio. A consolidated pension will also allow you to see your overall fund allocation and make necessary changes as your risk profile changes through time.

Many older pensions do not offer access to the new range of pension freedoms.

Other schemes, such as defined benefit, or final salary schemes can be transferred. However, it will not be suitable for everyone; and any decision to transfer should be reviewed thoroughly, as you could lose valuable and sometimes guaranteed benefits.

People need to take time to consider the advantages and disadvantages of consolidation and are clear on whether it’s right for them. This is where professional wealth management will really add value.

The level and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Alec Rose works as a Wealth Planning Associate at Apollo Private Wealth. Apollo specialise in providing holistic wealth management advice to private clients, families and institutions.

The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

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