Post-retirement planning is a key component of a healthy financial portfolio. Our specialists at Vintage Wealth Management offer advice on all aspects of post-retirement planning including how to invest wisely to live your chosen retirement lifestyle, risk mitigation and managing post-retirement income. After all, the last thing you need when you’ve worked hard for decades is to scrimp and save throughout the post-retirement years.
As you retire and your pension matures – or if you have taken your pension benefits early – you will need to decide how best to utilise your pension fund. One of the most popular methods is to opt for an annuity.
- Provides a regular income in exchange for the proceeds of a maturing pension fund. You can take up to 25% of the pension fund in a tax-free lump sum, but the rest must be converted into an annuity.
- Pays out until you die.
- The amount the annuity pays out depends on the size of the pension fund and the amount of tax-free cash you take.
- Payout levels also depend on your age, sex, health and the benefits you choose, such as whether it is solely for yourself or for both you and your partner.
Our advisers will ask some key questions to determine achievable income levels with your annuity and the most appropriate choice for your situation. This may depend on whether you are looking for a fixed income or income that rises every year, and whether you are in ill health (in which case an alternative option may be more suitable).
An unsecured pension is an alternative to annuity purchase that is often recommended for those with larger pension funds who wish to retain control of the investment of their fund. Unsecured pensions allow you to take a tax-free lump sum after which the remainder of your pension fund remains invested. The most common route is via Income Withdrawal whereby you can take a taxable income (no minimum) within certain limits directly from your pension fund.
Phased Retirement is a process of ‘crystallising’ your pension fund in stages, rather than securing your retirement income in one go. The process works as follows:
- Uses a part of the accumulated pension fund each year, in particular, the tax-free cash amounts, for income purposes (this may create a highly tax-efficient income stream);
- Remaining fund continue to be invested under pre-retirement rules for death benefits, which are more tax-efficient than post-crystallisation rules;
- Can be conducted through sophisticated encashment processes or by breaking down the pension fund into a number of segments;
- A series of small income streams are established each year, either through the use of Capped Drawdown or with the purchase of an Annuity (Lifetime, Investment Linked or Fixed Term).
Should you phase in the value of your pension plan?
You can also decide when you wish to phase in the value of your pension plan. Each element of phasing offers the option of another tax-free cash lump sum, which will increase your pension income by the value of the Annuity or Capped Drawdown arranged.
This process continues until your entire pension fund has been crystallised, and you may continue to make contributions to your plan to build up future pension income during this period.