In this episode of the How To Be A Money Magpie podcast, founder Jasmine Birtles is joined by Baroness Ros Altmann to discuss what happens when you get to retirement and you actually need to use your pension. What do you do when you actually come to retire? What should you look out for?
We recently collaborated with leading pension provider PensionBee to bring you six podcasts all about pensions. These podcasts cover the basics as well as looking in depth into different types of pensions.
- What are the decisions people need to make when coming up to retirement age?
- You can draw your state pension at 66, how do you apply for it?
- Is it worth deferring your pension if you’re continuing to work? Will you get more money when you take it out?
- Where would you suggest people go to find the right financial advisor?
- How much do you think you should have in your pension pot, through private pensions and investment, that will be enough to give you a decent income on top of the state pension?
- What do you think people should be thinking of when it comes to these different things that they could do with their private pension?
- If people are still worried about getting it right at retirement are there other places they can go to for advice?
- It is very important to separate the idea of pensions from the idea of retirement.
- Your pension is meant to be there for you when you’re not working or to supplement you if you move to part-time work.
- If you really don’t need the extra income from your pension, there are huge benefits to leaving the money alone paying more in and ultimately then having a lot more when you really do need your pension.
- If you’ve got more than one pension perhaps leave one or two alone and take some money out of one you may want to just take the tax-free cash for now and leave the rest invested.
- the idea of a pension isn’t just to have spending money in your 50s and 60s when you might not need it you need it obviously, of course, it’s there but ideally, it’s to help you in to your seventies 80s and 90s when you’re very unlikely to still be working
- You should get some communication from the DWP that you’re coming up to state pension age, they’ll as what would you like to do you still have to then respond and claim the state pension or let them know that you want to defer it.
- If you do want to claim your state pension, then you fill in the forms or the online forms and your pension should start on the closest payday to your 66th
Is it worth deferring your pension if you’re continuing to work? Will you get more money when you take it out?
- Delaying your state pension now is less generous now since 2016 with the new state pension system.
- You need to factor in how long you expect to live. If you’re in very poor health it’s probably not such a good idea to defer even if you’re still working the benefits that are available to you don’t pass on to the next generation like a private pension.
- You also need to factor in tax because if you’re in a high tax bracket then you will still lose some of your state pension in tax.
- If you have a normal life expectancy and you’re hoping that you know there’s no reason why you shouldn’t live into your 80s which is quite normal, then delaying the pension until a period you’re no longer earning therefore you’re no longer paying higher rates might be worthwhile.
- I would say that decision is complicated and should be taken with the help of financial advice
- Ideally, you really want someone who is totally independent can look at the whole circumstances that you’re in and the whole of the market to find out what would be best for you.
- It is really important to make sure that you’re getting advice from somebody who is on your side not their own.
- Something that we often suggest at moneymagpie is going online there are some comparison sites there’s this unbiased.co.uk which can help and vouched for I think vouchedfor.com is perfectly helpful because they’ve got reviews.
- The best route for a really good financial advisor is usually word of mouth but it is also important to say that financial advice and the work that you do with the financial advisor has quite a bit to do with chemistry as well.
- Financial advisors don’t usually charge you for an initial meeting anyway that’s a way in which you can maybe meet two or three and see which you feel comfortable with.
How much do you think you should have in your pension pot, through private pensions and investment, that will be enough to give you a decent income on top of the state pension?
- It totally depends on what spending needs you think you will have during retirement, what other income might be available to you from elsewhere, whether you’re thinking of downsizing your house and maybe having some extra money from there.
- I don’t think there is a general rule that you can use to say this is enough or this isn’t enough.
- Obviously, at extremes, it’s quite easy to suggest that you know if you’ve got a few £100 or even a few £1000 in your pension fund that’s unlikely to be enough to see you through.
- But conversely, if you have a million or more in your pension and you have a very expensive lifestyle and no other money you might end up being disappointed with the way your pension supports you.
- I don’t think people respond very well to that my idea about pensions is you’ve got a pension that is great now let’s see what you can do with it.
- It is vital that people plan for the kind of spending they might want or be able to afford so they can adjust their expectations or adjust their savings because it’s important to be able to plan for a period where you can’t just take money out of your pension.
- I say very often if you fail to plan, you’re planning to fail because you won’t have a clue what to do with your money or how to plan the lifestyle that might be your favourite option or the most realistic option for you.
What do you think people should be thinking of when it comes to these different things that they could do with their private pension?
- The first question you need to ask yourself is do I need to take money out at all?
- If you do need to take money plan it carefully because if you take too much in any one year you can bump yourself up into a much higher tax bracket and lose much more than you should in tax.
- If you are careful with your planning and you time your withdrawals relative to your other income you can pay little or no tax on the pension when you take it out.
- If your fund grows over time, your income from the funds can increase but if the markets have done poorly and your fund has shrunk a bit then you might want to take a bit less. The idea is that you don’t end up running out of money when you’re in your 80s and 90s and you’ve got nothing else to live on.
If people are still worried about getting it right at retirement are there other places they can go to for advice?
- A good place to start with just answering basic questions and getting all your information together could be if you’re over 50 to call the pension wise service the government has set up.
- It’s a free independent service that will help you understand pension decisions, it won’t guide you to make the right decision in terms of telling you what you should do but it will give you the parameters to consider and the factors that you need to take account of and the risks that you might face in retirement.
- Use some of the websites with modellers that you can access easily online and that would help you try and make your own retirement plan by feeding in various bits of information.