Pension Advice

Pension Advisory Service

Our Pension Advisors have been helping Clients with specialist Pension Advice for over a decade. We can arrange all sorts of retirement solutions to meet your needs including a guaranteed income for life (annuity), income for a fixed term (fixed-term annuity), flexible access to your money (draw-down), or a combination of these.

Pensions can often be large sums of money that you may need to rely on for the rest of your lifetime, and so you will want to have the confidence in finding the right products for you.

At Redwood, we put your needs first. We will provide you with a bespoke personalised plan and recommendations based on your circumstances, needs, goals, and plans for later life.

Our Financial Advisers will guide you every step of the way, from the initial research of suitable products for your financial planning needs, the financial advice and recommendations we make, making your decision, application and ongoing support with managing your pension pot. And because we want to ensure our financial advice is as transparent and easy to understand as it can be, we will always explain things clearly, in plain English, avoid jargon!

And you can be sure of having confidence that we will safely help you make the most of your money. We are strictly regulated by the Financial Conduct Authority, and our 100% Satisfaction Guarantee will give you the peace of mind that we guarantee the pension advice we give you for your retirement planning.

Do I need a Pension Adviser?

You may need help from a Financial Adviser to assist you with your decisions about your financial planning. Redwood’s Advisers are authorised to give you advice and recommend suitable pension products and investment options for you.

If you want to take your pension as a lump sum or as a flexible retirement income, you are required to obtain financial advice from an adviser if your pension pot is over £30,000 and it contains a promised amount or rate of income, such as a guaranteed annuity rate or defined benefits (e.g. a Final Salary pension).

In some instances, pension providers may require you to obtain financial advice if you decide to choose a certain retirement option. For example, if you choose to take a flexible retirement income, a pension provider may ask that a financial adviser helps you decide which investment choices are right for your retirement planning.

What is the cost associated with using a Financial Adviser?

We will charge you a fee for any advice we provide, however it will be bespoke and personal to you and your circumstances. Wherever practical, our prices are charged on a fixed fee basis. You will never pay us a fee without first knowing what that fee is, what it gives you and the benefits our advice provides before making a decision.

Should I take my Pension tax-free cash lump-sum?

The Pension Reform Act of April 2015 meant that from age 55, you can now access as much of your savings from your defined contributions pension scheme (also known as ‘money purchase schemes’) as you want under the new ‘pensions flexibility’ rules.

Headlines at the time suggested many people might choose to run off and blow their pension pot on world cruises, luxury cars, mortgage and debt settlement and goodness knows what else. The reality has been quite different for the majority of us!

However, the ability to take your pension in more flexible lump sums and income can give the early years of your retirement a real boost when you are likely to spend more. However, before you get swayed by what the money could buy you, our experts all agree that you shouldn’t take it just because you can, and that you are likely to need help from an adviser before you embark on any actions.

For starters, you need to make sure you will have enough retirement income left in your pension for your later life. Think about what you will do with it and the impact it will have on your life now and in the future. You may have a pension that has certain guarantees built into it, that you will be relinquishing, or the cost of making a change might out-way the benefits of ‘cash today’.

When you take money out of your pension, you do not just lose the initial value of your withdrawal – you also lose the growth that money would have generated had it remained invested.

Take a 55-year-old with a £100,000 pension pot. According to figures from investment firm Fidelity, if they took £25,000 tax-free cash and made no further contributions, in 10 years they would have a remaining pension worth £122,167.

However, if they left their pension alone at age 55 and kept the whole £100,000 invested, by age 65 they would have a much more impressive £162,888, of which £40,722 would be available as tax-free cash, should it be required (assumes 5% return a year).

We would always recommend that you seek professional advice and information from a specialist such as Redwood Financial before making any changes that can affect your retire planning.

What happens if the Government abolish the tax-free cash lump-sum policy?

Legislation changes all the time and of course we can never totally rule out a change in the taxation status of the 25% tax free cash pension lump sums by any future Government. However, tax-free cash has survived under Labour and Conservative Governments alike.

While abolishing the tax free cash could generate a significant revenue for the Government of the day, it could also prove to be political suicide when you consider how many people are saving into a pension and who would be upset if tax-free cash was abolished or reduced.

Even if the rules were to change in the future, any attempt to applying the change retrospectively would be illegal and likely to be contested heavily through the judicial system.

How much money can I put into my pension?

As of 202/21 the lifetime allowance stands at £1,073,100 and the annual allowance is 100% of your earnings subject to a £40,000 cap. The lifetime allowance is the amount of money you are able to pay into a pension over your entire lifetime. The annual allowance is the amount you can pay in each year and still receive tax relief on contributions.

The lifetime allowance has been an easy target for successive Governments to increase tax revenues through. Since 2008 the lifetime allowance has dropped by over 40%, from £1.8m, while the annual contribution allowance has dropped from a £255,000 cap.

Should I transfer my Defined Benefit Pension?

With some pension scheme members being offered 20 or 30 times their promised income to trade in their policy for a cash lump sum, it is hardly surprising that many are rushing to transfer. But it is not a decision to take lightly.

Any good Financial Advisor will always bring you back to focus on what the pension is there for in the first place, which is to provide you with a decent standard of living throughout retirement.

This means it is essential to get advice; indeed, if your transfer value is £30,000 or more it is a legal requirement!

It is possible a transfer may make sense for people who are not married – who would not get the benefit of a spouse’s pension – and those who are ill or unhealthy and are unlikely to a have a long retirement. The move would also be less risky if you had other sources of retirement income.

Should I still buy an annuity?

According to figures from annuity provider Retirement Advantage, draw-down sales now outstrip annuity sales by two to one. The former is regarded as flexible and giving savers control, while the latter is considered the very opposite, with tumbling rates leaving many savers disappointed with the income they receive.

While the current market rates and products available would make it very rare for our financial advice service to recommend an annuity, they do offer something no other product can – an income that is guaranteed for life.

While there has been some recent plateauing of the average life expectancy in the UK, the longer-term trend suggests that it is crucial that retirement savings can last you well into your later life. At Redwood, we like to assume you will live to age 100 and make sure you have sufficient retirement provision to see you through till then.

This might mean using an annuity to cover basic expenses and maintaining a pot to invest flexibly or using draw-down in the early years and buying annuity income in tranches as you get older. At this point, your age and health may mean you can get better rates.

The peace of mind provided by a guaranteed lifetime income with an annuity, coupled with the longer guarantees now available, and the removal of the old concern that the pension provider would keep the money if you die early means there are still some circumstances where an annuity might be the right choice for you.

How much can I take from my pension?

Before looking at the numbers, you’ll also need to think about what you want to do with your retirement and what your financial priorities are – for example, whether you want to really make the most of your early years while you’re fit and well, or whether you want to stockpile your cash for care later in life or an inheritance for loved ones.

Unless you buy an annuity, you will have to carefully manage how much money you can take out of your pot to ensure that it does not run out.

You will need help and advice from a financial advice service like Redwood Financial who can provide you with information and modelling forecasts based on various scenarios of percentage cash drawdowns versus differing life expectancy. For example: taking 3.5% income off your pension pot value each year might be fine, unless you live to 105, in which case it might run out years before you do!

Good ongoing management and financial advice are critical here and the right course of action which much depends on your health and life expectancy through to world events and the underlying performance of your funds.

It is also important to consider that your spending needs will change during your retirement. The early years of your retirement are likely to be the most expensive, but costs can be high in the latter stages too. Care Fee costs may be an expensive drain on your wealth and resources, and so some effective Estate Planning is also a vital building block to your overall financial and wealth plans.

Can I take my whole pension as a lump-sum?

The short answer is yes, but we would not recommend it, except in some extremely limited circumstances!

Once you have taken your initial 25% tax-free cash, any further pension withdrawals are added to your income and taxed at your marginal rate of income tax and may well mean that a very large and unwelcome tax bill is landing on your front door mat!

The exceptions might be if you only have a small pot and you have other sources of retirement income, or you have a diagnosis of a terminal illness that means you want to release the cash to enjoy now. The key is doing it because you have a specific need or use for the cash, rather than just sticking it in the bank, where you’ll get negligible returns and lose all the tax benefits of keeping it in a pension.

We would recommend seeking financial advice, as in these cases you’ll still need to consider the most tax-effective way and it may make sense to phase your withdrawal over several tax years to avoid hitting a higher-rate tax band just to get the money.

Must I take an income from my pension?

The simple answer to this question is ‘No’ you can’t take income from your pension. It may be that you are still working or have other sources of income, in which case there are many sensible reasons for leaving your pension untouched. There can be advantages in leaving it within a pension, including tax-efficient growth, the ability to pass the money tax free to your beneficiaries if you die before age 75 and pension money being outside of your estate for inheritance tax purposes.

Will I have to pay tax if I take an income from my pension?

Unless your total income for the year, including any earnings, private and state pension falls below the personal income tax allowance, any withdrawal from your pension pot after the 25% tax free lump-sum allowance will be treated as income and will be subject to tax.

However, with the right financial advice, it is possible to structure your tax allowances to maximise your returns and reduce, or even eliminate your potential tax liabilities.

Need more help?

Call us on 01489 877547 to book an Initial Meeting or fill out our Contact Form to request a call back.

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Jasmine Lambert Chartered Financial Planner
Jasmine Lambert
Jasmine was awarded the British Young Practitioner of the Year in 2018. She is a qualified Chartered Financial Planner and full member of Society of Will Writers.
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