This content is for information and educational purposes only. It should not be taken as financial advice or investment advice. To receive tailored, regulated financial advice regarding your affairs please consult us here at Hanson Financial Services (financial advice and planning in Liverpool).
In certain situations you are legally required to seek independent financial advice. For instance, if you are thinking about transferring a final salary pension worth over £30,000. In most other cases, however, this is not required. It is technically possible to make pension arrangements on your own. Yet should you do so? After all, the stakes are very high when it comes to your life savings and many of the decisions you can make are irreversible – such as changing your mind about buying an annuity, once the “cooling off period” is over.
Yet we understand that approaching a financial adviser about your pension is not always easy. Professional advice costs money, and many people are uncomfortable at the thought of baring their finances to a stranger. Yet, if you choose the right adviser, the cost can more than pay for itself and a long-term, trusting relationship can be formed.
Financial advice and building a pension
Today in 2021, most adults in the UK will have a state pension, a workplace pension and maybe one or more personal (“private”) pensions. When you retire, these often work together to provide an income in retirement. The new state pension offers £9,110 in 2020-21 assuming you put in the minimum 35 years’ worth of qualifying national insurance contributions (NICs). You may well accumulate this automatically via your employer, through the PAYE system.
The latter two pension types require a lot of careful thought. The earlier you start putting money into your pension(s), moreover, the more time the capital has to compound and grow. This can take a lot of pressure away from needing to increase your savings later, to make up a shortfall. In all of this, financial advice can be extremely helpful.
First of all, he/she can advise on whether your contribution levels need to change to meet your retirement goals. At minimum, for instance, you are required to put 5% into your workplace pension, yet it may be wise to put in more if you can afford it. Secondly, a financial adviser can suggest how to make your money stretch further. For example, perhaps there are cheaper funds which you could invest in which offer similar/better performance compared to your current ones. A change in investment strategy might also offer better growth prospects – especially if you have a long investment horizon in front of you.
Financial advice and transferring a pension
For people later in their careers, it is common to have moved jobs many times. As a result, you may have as many as twelve (or more!) pension pots accumulated in different places. This can be a good time to consider consolidation – i.e. transferring these into one, easy-to-manage pot. Yet how do you track all of your pensions down? Which ones impose punitive charges for trying to leave, and where should you move the money to? Should you keep any of them separate? Here, again, a financial adviser can offer a lot of clarity, insight and peace of mind.
Financial advice and using a pension
Many difficult questions about pensions come your way as you get older. One of these concerns your tax-free lump sum, which allows you to withdraw up to 25% of your pension at the age of 55 (in 2020-21; this age will likely rise in the future). Taking a lot out may be tempting – perhaps to pay for that nice new car or house extension – yet how might this affect your lifestyle and income later in retirement? Without the software and expertise available to a financial adviser, it can be very difficult to make an informed decision about this.
Another complex question to answer concerns how you take your retirement income. Here, the key question is: “Should I buy an annuity or go into drawdown?” The former offers a guaranteed lifetime income, but in 2021 the income will likely be lower compared to a drawdown approach. Yet this latter option involves taking on investment risk yourself, which may cause your income to fluctuate in retirement. For some people, it may even be appropriate to take a blended route – i.e. using some of their pension to buy a small annuity to cover some of their essential costs whilst keeping the rest invested.
Regardless of how you take your income, each option involves answering complex questions. Which annuity should you buy, for instance, and when should you do it? For those considering drawdown, how much can you withdraw “safely” each year and where should you invest the money? All of these questions can be answered more confidently when you have a financial adviser at hand, providing you with the most up-to-date information and insights.
Are you interested in talking to a financial adviser about your pension and investment planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
You can call us on:
Liverpool Office: 0151 708 7616
Manchester Office: 0161 401 0991
Chester Office: 01244 960 039Or email via: [email protected]