Retirees swamped by pension choices increasingly rely on professionals for advice

Are you concerned about running out of money when you retire? If so, you’re not alone.

A new survey by Aegon has revealed that two in five financial advisers say that their clients’ primary concern is running out of money after they stop working. And, a third of advisers (32%) said that their clients worried they would not be able to have their preferred retirement lifestyle.  

The survey also found that, as the choices open to retirees are wider than at any other time in the past, people are increasingly turning to advisers for help in ensuring they generate the retirement income they need.

So, how are retirees taking their income since the Pension Freedom reforms? How deeply rooted are concerns about running out of money in retirement? And what can your adviser do to help you?

Pension Freedoms mean retirees are taking their income in different ways

Back in 2015, new rules came into force which gave retirees more choices as to how they accessed their pension savings on retirement.

The latest Aegon research suggests that, over the last four years, people who are retiring have taken advantage of the new Pension Freedoms. They found that:

This shows that a significant number of retiring clients are choosing new drawdown options rather than buying an Annuity or holding their pension savings in cash.

In addition, the law changes seem to have also altered the way in which people decide to retire. Rather than finishing work for good, 74% of advisers say that clients are choosing to retire gradually and access their funds as and when they need them, rather than deciding what to do with the entire sum.

Nick Dixon, Investment Director at Aegon, says: “The freedoms have enabled individuals to adopt a more flexible transition into retirement, with people accessing pension savings to support a reduced working pattern.”

Retiring clients increasingly turning to advisers for guidance

Pension Freedoms have certainly given retiring clients a wide range of additional choices. Getting to grips with these options is more challenging, however, and increasing numbers of people approaching retirement are looking for professional advice in order to understand the choices available to them.

The research found that:

Nick Dixon adds: “Our research shows that, with the flexibility, advisers are finding that clients are relying on them to guide them in the decisions they make, as many retirees fear running out of money.”

There are lots of reasons why it can pay to take professional advice as you are approaching your retirement. Here are just a few:

You might want to stagger your retirement

The timescale for retiring is much more personal than it used to be. Research found that three-quarters of retirees were gradually finishing work, rather than deciding to retire. Perhaps you’re planning to continue part-time, or even set up your own business?

Retiring gradually means you might not need your full retirement income from day one. An adviser will help you work out the income you need and manage your savings accordingly.

Understanding the options

Quite simply, if you’re retiring now you’ll be faced with more choices than even a decade ago.

Understanding the various options and their implications can be tricky. You may want to guarantee a certain level of income but also have the flexibility to draw down additional funds as you need them. You might also want to take an immediate cash lump sum.

Taking professional advice can help you to understand the choices open to you and what is most appropriate for your unique circumstances.

Tax planning

Since 2015, you’ve been able to withdraw all your pension savings as a lump sum. While this may seem like an attractive idea, the truth is that it can have significant tax implications. When you take a lump sum out of your pension, 25% is generally tax free with the remainder taxed as income. You might end up paying more tax than you expected, particularly if taking the lump sum pushes you into a higher tax bracket.

Conversely, leaving some or all your pension invested when you retire can ensure that you continue to receive favourable tax treatment on that investment.

An adviser will help you to understand all the tax implications of your retirement and utilise all your available tax allowances and reliefs in a structured way. This will help you to maximise returns and reduce any potential tax liability.

You want to look after your dependents

As well as making sure you generate enough income to last you for your whole retirement, you might also want to ensure your dependents are protected when you die.

Factors to consider will include your pension savings, life insurance, other assets, and whether you’re likely to face an Inheritance Tax liability. You might also need to update your will.

Choosing Flexi-Access Drawdown will typically provide more flexibility to pass on any unused pension money to your dependents. And, if you die before the age of 75, you won’t generally pay any income tax on your unused pension money. 

An adviser will help you to ensure you have plans in place to provide for your dependents when the worst happens. You’ll benefit from the peace of mind of knowing that they will be looked after.

If you’re one of the majority of people approaching retirement who is seeking professional advice, get in touch. Email or call (0161) 8080200 to find out how we can help you.

Please note:A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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