Pension Advice - Most Of Us Are Going To Need It

Everything to do with pensions is complicated – and it all seems to be getting more so, despite pensions supposedly having been simplified in 2006.  Whatever kind of pension decision you need to make, it will really pay you to take pension advice.

So what kind of decisions might you need pension advice about?  Some examples might include:

• How do I plan my pension?  Pension planning is basically about taking control of your life, rather than waiting till retirement and hoping for the best.  So the earlier you start taking advice on pension planning, the better.  The adviser will look at your employment situation, your current income and commitments, your preferred retirement age, etc.  The advice will look at such questions as: what is the right type of pension for me (e.g. final salary, money purchase, personal pension)?  What size of pension pot should I be aiming for? How much should I be putting aside each month? 

• Should I take “tax-free cash”?  This is now referred to as “pension commencement lump sum” (PCLS).  If so, how should I use it?   If you are in a company final salary scheme, you will usually receive the lump sum as part of the package.  However, if you are in a personal pension plan, you can opt to take 25% of the fund as a tax-free sum at the commencement of your retirement.  Of course this would affect your income so you need to consider whether this is something you really want.  If you haven’t yet paid off your mortgage, you could use the lump sum to pay it off, which would actually increase your pension income.  Another option is to buy a “purchased life annuity”, which has tax advantages over the standard pension annuity.  Or, of course, you could take that world cruise you’ve always wanted!  Pension advice can help you make the right decision.

• What is my tax situation?  How can I minimise the amount of tax I pay?  The tax situation where pensions are concerned is quite complex, so you could end up paying more tax than you need.  This is where you really do need pension advice.  The more efficiently you can organise your tax affairs, the better you can maximise your income in retirement, as well as maximising the amount you can leave to your family.  The pension adviser needs to ensure you know what tax relief you are entitled to on your pension contributions.  In addition, if you are in a position to make additional investments to increase your retirement income, you need to know what are the most tax efficient investments to make, to ensure your investment income in retirement has the minimal effect on your pension income.

Whatever your pension situation, you could probably benefit from pension advice at some point. 

Remember that, for the best advice, you should choose an Independent Financial Adviser (IFA) who has access to the whole of the market and who has an advanced qualification in pensions,  If you are worried about being pushed into a personal pension plan when it’s not the best option for you, choose a fees-based rather than a commission-based adviser.  But the vast majority of IFAs will give you advice that’s in your best interests and that will ensure that you are as comfortable as possible in your retirement.