3 practical reasons why you should seek advice before drawing your pension

Retirement is traditionally seen as a time to relax and enjoy the rewards of a lifetime of hard work. You probably already have an idea of the kind of things that you would like to spend your time doing when it finally arrives.

Of course, whatever you intend to do, it is important to ensure that you have enough wealth to support your desired lifestyle. This is especially true if you plan to retire early, as your pension assets will need to last for a longer period.

According to a recent study published by MoneyAge, only 14% of retirees over the age of 55 sought regulated advice before retiring. As you might imagine, not being able to make informed decisions with your wealth can pose significant risk to your long-term financial wellbeing.

If you want to avoid the prospect of running out of money in retirement, seeking professional advice can be highly beneficial. Read on for three practical reasons why you should speak to a professional before drawing your pension.

Retirement planning is essential if you want a comfortable and sustainable lifestyle

If you want to have a comfortable retirement, it’s important to plan thoroughly to ensure that you can have a sustainable source of income. As people live longer due to medical improvements, this concern becomes even more important.

According to a study published by FTAdviser, more than half of all retirees do no pension planning before retirement. This can mean that when the time comes to draw their benefits, they run into unexpected problems and could even face the possibility of running out of money.

Working with a professional can help you to build a robust financial plan so you can enjoy your retirement to the fullest. Here are the three main ways that it can benefit you.

1. You could pay less tax when accessing your pension

One of the biggest reasons to seek professional advice before you draw your pension is that if you don’t, you could risk losing a significant portion of your hard-earned wealth to tax. This poses an obvious problem, as you would probably prefer to use that money to support your desired lifestyle.

When you withdraw from your pension funds, you can typically take up to 25% of your pension tax-free, but if you draw more than this amount then you may have to pay Income Tax on it. This means that if you’re a higher- or additional-rate taxpayer, you could potentially lose 40% or 45% of your pension to tax.

Furthermore, it’s important to be aware that if you withdraw your pension as a lump sum, it’s added to your income for that tax year (6 April to 5 April) and can be subject to Income Tax. This could easily place you in a higher tax band if you aren’t careful, meaning that you lose a large portion of this hard-earned wealth.

2. You may have to seek advice if you have a final salary pension

If you have a defined benefit (DB) pension, sometimes known as a “final salary” pension, this can be a valuable and reliable source of income in retirement. However, it is also possible to transfer this into a defined contribution (DC) pension.

If you are considering doing this, and the pension you want to transfer has a value of £30,000 or more then legally you have to seek professional advice first. This is because, in most cases, the transfer may not be in their best interests so it’s important to be able to make an informed decision. Working with a planner can help you to properly consider your options before you act so you can rest assured that you’re making the right decision for your situation.

3. They could help to ensure your pension is sustainable

Retirement should be a time to relax and enjoy yourself. So, it shouldn’t be a surprise that running out of money is a common source of anxiety for people approaching retirement.

Unfortunately, for many people, these fears aren’t misplaced as a recent study published in FTAdviser shows that two-thirds of people retiring in 2021 could face this prospect.

One of the main reasons that people run out of money in retirement is that they withdraw their funds at an unsustainable rate. According to a recent study by LV=, published in the Telegraph, more than one-third of Brits don’t know how to avoid doing so.

Since your choices concerning how you draw your pension are likely to be some of the most important ones you ever make, it’s crucial to be able to make an informed decision. This is where seeking professional advice can help you.

When you work with a financial planner, they can help to assess your desired lifestyle and find a sustainable level of withdrawal for your needs. This can give you greater confidence that you’ll be able to meet your retirement goals, whatever they may be.

Get in touch

If you want to gain more peace of mind that you won’t run into any financial issues in retirement, we can help. Please email enquiries@metiswealth.co.uk or call 0345 450 5670.

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. Your pension income could also be affected by the interest rates at the time you take your benefits. 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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