Plan to get the most out of your pension provision
Commence saving for your retirement as soon as possible as the longer you leave it, the harder it is to catch up on missed time and contributions.
Maximise your pension contributions in order to boost the value of your funds at retirement.
Even if you are fairly close to retirement, you could still benefit from the tax efficiency of pension contributions.
Look at your other savings and investments to see how they could help you fund your retirement. Consider rearranging them to make the most of the tax bands and allowances, especially if you are married or partners in a registered civil partnership.
If you have pensions that are invested in equity markets, (such as personal pensions or stakeholder pensions) take professional advice to protect their value against short term falls in the stock markets. Stock markets can move without warning so even if you are three or four years from retirement you should consider reducing your exposure to investment risk.
Make sure you exercise the open market option and shop around for an annuity that will give you maximum retirement income. If you are a smoker or have a poor medical history, you may be entitled to enhanced rates. Not all annuity providers offer them so it's important to take advice from a professional to shop around on your behalf.
Beware that by exercising the open market options or consolidating funds, you do not lose access to potentially valuable guaranteed annuity rates under your existing plans. Many older style contracts, typically ‘with profit’ plans from the late 1970' incorporated guaranteed annuity or conversion rates.
Once you have reached your nominated retirement age, you do not have to take the benefits from private pension plans such as personal/stakeholder pensions. You could leave them invested if you do not need the income or the tax free lump sums and they will continue to attract tax advantaged returns. A major advantage of this, if you are in this position, is that undrawn pension funds are generally not included in your estate for inheritance tax purposes. On death the fund is generally returned free of all taxes to your personal representatives as a lump sum.
Remember that your life in retirement could be as long as your working lifetime, if not longer. You need to think about the affects of future inflation on your pension income and how you will cope. In addition you need to make the same assessment of your non-pension investments and savings because inflation will impact upon them too and if they are being used to support your standard of living in retirement they could be eroded faster than you expect.
Your pensions may not just be providing income for you but also potential income for your spouse or partner and dependants in the event of your death after retirement. You may need to consider how to structure your income to make provision for them.
A proportion of your pension funds could be taken as a tax free cash sum rather than an income. Consider how you can make the best use of that lump sum either by reducing debts and mortgages or investing in the most tax efficient way to supplement your reduced pension income.
Where you have to commute part of your pension for a tax free cash sum, for example within an employer's final salary scheme, check to see whether you can replicate what you are losing in the way of pension by way of other investments before you take that decision.
It’s very important to review your affairs on a regular basis so that you keep making the most of the funds that you have available.
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Your home may be repossessed if you do not keep up repayments on your mortgage.
Levels and bases of, and reliefs from, taxation are subject to change.
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