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The importance of taking pension advice – part 2

03/04/2019 … Author:

Savers have accessed over £3.2bn of their savings through pension freedoms without taking any financial advice, new research from Saga has revealed.

The value of your pensions will affect many elements of life, both now and in the future: from the age at which you can retire to the lifestyle you can expect. Establishing what you have and what it will provide in the future, sooner rather than later, is often the key to achieving your goals and aspirations in retirement.

In our previous article, we discussed the importance of setting achievable retirement goals and keeping a sustainable retirement income. Establishing the income your pensions will provide is essential when planning for retirement. Nevertheless, many people are unsure what they can expect.

Reviewing investment performance

This ties in with selecting the right level of risk. As pensions are held over a long period of time, when accumulating wealth early on in life, portfolios can often accommodate a higher level of risk to potentially increase returns, on the basis that there is more time to recover from a stockmarket fall. Whereas, in the years running up to and in retirement, risk is lowered to retain as much of the accumulated wealth as possible.

Portfolio diversification is essential to help mitigate against adverse investment events and sustain the levels of the capital already gained. A uniform investment strategy that is readily and regularly reviewed can help someone see how likely they are to meet their retirement objectives.

An Independent Financial Adviser will be able to help manage a portfolio. At Lowes we have a dedicated, award-winning* investment team constantly monitoring investment funds, managing our own in-house portfolios and those of our clients.

Transferring and organising pensions

One of the effects of the pension freedoms has been to make people look at their pensions and decide whether it would be beneficial to keep their pensions where they are, transfer, or consolidate. There are benefits to transferring from one pension to another, for example to take advantage of new death benefits under the pension’s freedoms, which allow the remainder of the pension to be passed on to beneficiaries.

Similarly, where a number of smaller pensions have been accumulated over the years, it can make sense to roll them all into one pension, which may have lower charges and also be more flexible in its terms and conditions. Conversely, in some cases having up to three small pots, under £10,000 each, can be advantageous.

People who have more than one final salary scheme have also been considering whether they require each of them or whether they should transfer to a Personal Pension   one or more schemes.

As you might imagine, this can be a very complex area. Indeed, the Financial Regulator has made it compulsory for anyone with a defined benefit pension (also known as Final Salary Pensions) with a transfer value of over £30,000 to seek expert financial advice if they wish to transfer or cash in their pension.

Transferring from one pension scheme to another, or indeed cashing in a pension scheme, is an action that should not be taken lightly because of the specific pension benefits which may be given up as a result. Not surprisingly, therefore, this is an area where people are particularly looking for Independent Financial Advice.

Tax planning

Tax planning is another key area where people can lose out and so are seeking Independent Financial Advice.

The pensions landscape has changed significantly over the years. A few years ago an individual could save up to £1.8million in their pension fund (this is currently £1.03 million, rising to £1.055m in the 2019/2020 tax year). Similarly, the maximum someone can now ordinarily save into their pension in one year is £40,000.

While these may seem like large numbers, given pensions are held for decades and for purposes of final salary and public sector schemes are valued at 20 times the value of their pension (plus any tax-free cash paid). These days people can more easily find themselves caught out by these rules. Likewise, people cashing in pensions are being hit by large income tax bills, sometimes pushing them up into a higher tax bracket.

Often a pension fund is the largest investment you may have, yet without appropriate financial planning, many people could outlive their savings and investments. As Advisers we can help implement strategies for accumulating retirement wealth and then decumulating that wealth in a planned and sustainable way.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

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