30th November 2016 at 1:10pm
Have you got questions you’d like answered when it comes to your retirement?
Perhaps the following Q&As from our retirement events can help with some important decisions.
Find out what your options are from the experts
The pensions landscape has changed and there’s never been more reason to make sure you are informed about your options.
It’s why we run retirement events across the country, which are open to everyone and ideal if you’re 10 years or so from retirement – there’s no charge.
Our qualified experts explain what recent pension changes mean and what you need to think about before you make any decisions.
Importantly, the events are an ideal opportunity to ask questions about your own retirement plans.
Your questions answered
Here are some of the main things customers told us they want to know about at our recent event at the Gherkin in London.
We take a closer look into pension drawdown, with profits funds, the Lifetime Allowance and understanding annuities.
How do you move from an old-style product to a new one to facilitate drawdown (take money from your pension flexibly)? Are there penalties or charges and what do you need to think about?
Some older-style pensions weren’t set up to allow drawdown because, before pension freedoms, many people opted to take an annuity, not drawdown their pension as and when they wanted to.
If you want to take an income from your pension while keeping the rest invested, then you may need to change to a pension that supports drawdown, such as our Active Money Personal Pension (AMPP) or SIPP. Upgrading to an AMPP can be done online.
There are no penalties when it comes to taking money from your pension and any charges you pay will depend on your investment choices.
Of course, it isn’t suitable for everyone and there are a number of other considerations to think about, such as whether you’ll have enough money to last you and how to take your money tax efficiently. It’s vital to review your circumstances on a regular basis, too.
Taking your money this way also can impact any means-tested benefits you might get if your income – and this includes your pension – goes over a certain threshold.
What are the next steps when drawing down pension income?
If you’ve already chosen to take some of your pension savings, your next step is to choose where to invest the rest.
You can choose from a range of ready-made investment options if you know how you plan to take your money in the future. There are also options based on how much risk you’re comfortable taking with your investments – these give you more control but you don’t have to manage your own investments on a day-to-day basis.
Or, if choice is what you’re looking for, then you can pick and manage your own investments from a full fund range.
Whatever your long and short-term goals, there are investment choices to meet your needs.
Of course, you do need to be comfortable taking some investment risk and understand that you may get back less than you paid in.
You also need to be aware that there are different investment considerations when you’re taking money out of your pension than when you’re saving into it.
Find out more about your investment options in retirement.
And it’s worth remembering that some things haven’t changed – you can still take 25% of your pension savings as tax-free cash.
You pay income tax on the rest, depending on your income and tax circumstances.
What’s happening to the Lifetime Allowance?
Many people want to know more about the Lifetime Allowance (LTA) and how much you can save into your pension before the LTA tax charge applies.
There are some myths around the LTA, not least because it’s changed over the past few years. What was once an £1.8m lifetime allowance is now £1m.
Many people are also under the false impression that saving above the LTA will always result in a tax penalty of 55%.
There is no immediate tax charge when you exceed your lifetime allowance.
A charge only applies when you crystallise those benefits in excess of the LTA.
Generally that is when those funds are used to provide you with an income, either through drawdown or by buying an annuity. A 55% tax charge applies if you take the excess as a lump sum. But take it as income and the charge is only 25%, with the income you take taxed at your own tax rates. For many this can result in an overall tax charge of less than 55% being paid.
There are some options to protect a higher Lifetime Allowance amount but conditions apply, including whether you have paid into your pension this year or not.
You can find a wealth of details about the lifetime allowance here .
With profits – how do they work?
Did you know that with profits funds come with some valuable guarantees and can help you ride out market ups and downs?
It seems many people don’t, so we are dedicating a whole article on this topic.
You can find out more about guarantees, the smoothing process and more, in our round-up of the benefits and outcomes of with profits here.
Why are annuity rates at their current level?
Annuity rates are largely influenced by two factors: interest rates and how long people are expected to live.
Bond yields and their effect on annuity rates
One of the main factors affecting annuity rates is the price of government bonds (most commonly gilts) and other long-term bonds that annuity providers use to finance the payment of income.
The rate of return insurers expect to earn on these assets will affect the income annuities will pay.
The longevity factor affects how much is paid out
Providers consider a range of factors to estimate how long an annuity customer could be expected to live for. For example, many take into account the customer’s health and lifestyle.
So someone in poor health would not be expected to live longer than a person in good health, and would receive a higher income as the annuity would be expected to be paid for a shorter period. That’s why it’s important your health is considered when taking an annuity.
Another factor which influences the level of income an annuity will pay out is the type of annuity. For example, a joint life annuity, where the customer’s husband, wife or partner continues to get paid an income on their death, is generally lower than an annuity which stops when the customer dies.
Any fees or advice costs when setting up the annuity can also affect the level of income a customer gets.
Read more of the kind of questions our customers ask us about, including inheritance tax on pensions, tax and the different types of annuity here .
Got some questions about retirement?
If you are interested in topics like these – or anything else around your retirement options – let us know or consider coming along to one of our regular retirement events.
If you’re approaching retirement and still have some unanswered questions, contact your financial adviser or get in touch with one of the qualified experts at Standard Life.
You can also access the government’s Pension Wise service for free and impartial guidance.
The information in this blog or any response to comments should not be regarded as financial advice. Information correct as of November 2016.
A personal pension is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules can change in the future and your personal circumstances also have an impact on tax treatment.