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Income in Retirement Planning

29/3/2019

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Given the arena currently being dominated by the “B” word I thought it would be refreshing to look at an alternative topic for this blog, the way income withdrawals are typically structured from defined contribution pensions.
 
Income Drawdown
Income drawdown is a way of using your pension pot to provide you with a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income you get will vary depending on the fund’s performance and it isn’t guaranteed for life.
 
You can choose to take up to 25% of your pension pot as a tax-free lump sum. You can then move the rest into one or more funds which allow you to take an income at times to suit you. Most people use it to take a regular income. The income you receive may be adjusted periodically depending on the performance of your investments and your individual requirements, it can even be switched off.
 
It's important to carefully plan the money you take from your pot to ensure you don't spend it too soon. If your pension pot is the basis for your main income in retirement, and you don't manage your income or pay attention to the underlying investments, you could seriously deplete your funds or even worse, run out of money.
 
Think carefully about taking too much too soon. Unlike with an annuity, income drawdown doesn't guarantee you an income for life.
 
Phased Retirement
Many people like to retire gradually, without giving up work altogether. Phased retirement (or staggered vesting) is where you can take part of your pension and continue to work. It can offer a flexible approach to commencing and withdrawing pension benefits.
 
It may suit you to retire gradually without giving up work altogether. Phased Retirement could suit your lifestyle whilst providing you with a greater degree of control and flexibility over your pension fund.
 
Phased Retirement can be a flexible and tax efficient way of providing an income in your retirement. You can control how much income you receive, in what form and how the remaining pension fund is invested.
 
If one of the above methods is being considered, although most people aren’t affected by the lifetime allowance, those with larger pots must take this into account.
 
The lifetime allowance is the maximum amount of pension that can be drawn from pension schemes – whether lump sum or retirement income – paid without triggering an extra tax-charge.
This can be quite onerous so it needs taking into account.
 
We would always recommend working closely with your adviser who will be able to advise on the underlying investment portfolio and analyse the impact of specific income/withdrawal levels, taking your risk tolerances and objectives into account.
 
May we wish you a happy forthcoming Easter.
 
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested. Tax treatment of pensions and investments varies according to individual circumstances and is subject to change.
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    Director, David Hardman has over 20 years experience in financial services.

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