23rd September 2015 at 1:11pm
If you’re approaching retirement, recent pension changes have opened up a whole new world of possibilities when it comes to your options.
How you plan to take your money has never been more important.
Gareth Trainor highlights what you need to consider.
The recent changes to government rules on pensions mean we should all take a look at where we’re invested – even if retirement still seems a long way off. And if retirement is getting close, I’d advise doing it now to avoid any nasty surprises.
Here’s a quick run-through, plus a three-point checklist of what you need to consider.
Starting with the issues
In simple terms, the new pension freedoms mean most people don’t have to buy an annuity, or a guaranteed income. And most of our customers are telling us that they’ll use the new freedoms either to take their money as a lump sum, or leave it invested.
This is where a ‘but’ comes in. Most people who have pensions that rely on investment returns (called ‘defined contribution’ pensions) will go into investments like long-term government bonds that will get them ready to buy an annuity.
That’s fine if you want to buy an annuity, because annuity rates tend to match the ups and downs of these investments. But if that’s not what you’re planning to do, you’re taking investment risk you don’t need to as these investments can commonly go up and down in value by 5 to 10 per cent.
So what should you do? Here’s a quick checklist:
1. Think about what you’ll do with the money in your pensions
Will you withdraw it, leave it invested, or do you want a guaranteed income for life (an annuity). Maybe you’re not sure what you want to do, so prefer to keep your options open?
2. Dig out your paperwork and check where your money is invested
Most importantly make sure it’s aligned to your plans. If you want to buy an annuity and you’re already invested for doing that, no problem. But if your plans and investments aren’t aligned then carry on listening.
3. Take a look at your options
Most pensions will have easy choices for those of us who are unsure about investments or simply don’t have the time. If you’re in a company pension, you can check with your employer what this is. If you’re not sure what’s the best option for you, you should get advice.
You can read a more on this subject in Approaching retirement – what do the market falls mean for you? and in Approaching retirement – check your silver lining doesn’t have a cloud.
And if you want to know more about investing in retirement check out this video and series of blogs.
Join the conversation
A pension is an investment. Its value can go up or down and it may be worth less than you paid in. Investment returns aren’t guaranteed. The value of your investments can go up or down and may be worth less than what was paid in.
This blog and any responses are not financial advice.