We’re all aware that it is more beneficial to pay into a pension scheme over many years and start as young as possible to give it multiple years to grow, but when was the last time you reviewed your pension? An annual review is a vital part of your financial planning. The review gives an indication of the benefits which may be available in the future and helps you assess the progress and current status of your plan. Is your pension provision on course to meet your retirement needs?
In this guest blog, we asked Graham Lindsey of Blenheim Wealth Management Ltd to run through the… Essentials of a Pension Review
One of the most important reasons to review your pension annually is that you stay connected with your pension so there are no nasty surprises as you near your slowing down or retirement age. Your pension is a powerful tool – turning your hard-earned money into a cushion to support you as you get older – but are you paying into the correct type of scheme for your needs?
The foremost questions to answer are:
- What age do you want to retire or go part-time?
- What age will you be able to afford to retire or slow down?
- How much income do you need to have a decent lifestyle in retirement?
- Do you know what income you will need in retirement?
- Are you on track to receive the pension income you need, when you need it?
Having answered these questions, (or to help you answer these questions) your financial adviser will help you to ascertain whether you can afford to pay more into your pension pot. Your advice can also investigate if you have any ‘frozen’ pensions that aren’t working for you and need reviewing. They will also advise whether the type of pension you have is the best for your needs.
It makes sense to carry out an ongoing review of your risk profile to ensure the pension fund is invested at your correct risk level. Are your pensions invested in the correct risk profile, are you taking too much or not enough risk? As you get older it generally makes sense to reduce the amount of risk you take
Are you aware of the tax pensions relief of 20% or 40% (dependent on your tax position and subject to certain maximums)? Are you aware you can receive a tax-free lump sum from your pension fund? Are you saving money regularly from your earnings in order to receive tax benefits? There are tax reliefs to be had if you can afford to pay into a pension for your children or grandchildren (up to certain maximums) and Inheritance Tax benefits to placing pension funds into Trust.
It is important that your pension fund contributions stay within the annual allowance and your overall fund values stay within the lifetime allowance to avoid taxation penalties. There are also benefits to leaving your pension fund invested and utilising other savings resources for income when you need it or to reduce/eliminate any Inheritance Tax that may be due on your estate. All these are important points that your pensions advisor should discuss with you.
Do you have a pension based on final salary, career averaged earnings or are you paying into a personal pension of some sort?
Are you able to make additional voluntary contributions and/or buy added years?
A good financial adviser will guide you through your savings goals and the ‘tricky stuff’ to help you achieve your goals, whether that’s adjusting your retirement income strategy, looking at the age you take your pension benefits and your state pension options.
They will have the latest information on any recent changes in legislation, for example, flexi-access drawdown, along with assessing the effects of inflation on your pension income and the implications of death on the payout, tax and benefits of your pension.