Thinking of stopping or cutting down on work?

• Start planning
• Plan for the long-term
• Don't forget the tax man!

 Get ready for a new era

Whether or not you’re the retiring type, you’ll probably want to make some changes over the next few years. At this stage, you are probably thinking about how you can have a comfortable and fulfilling retirement.

We have some retirement planning ideas to help you manage your finances and emerge confidently into the retirement you want. 

What could this new era look like? 

You may have been very busy working or raising a family - or both. Have you had time to think about what you’ll do when you have more time?

You could gradually reduce your work hours, go part-time, consult, sell the business, travel, enjoy old or new hobbies, or volunteer. Your plans may probably change, but it’s useful to come up with a starting point.

Life-changing plans usually need to be paid for, so let’s review what you might have available to you. 

Take a peek in the pension pot

Check your statements for any workplace or private pensions. How much is in the pot?

If you’ve changed jobs over the years, you may have several employee pensions with different providers. You may have even lost track of one or more when you’ve moved home. The Association of British Insurers says there could be as much as £26.6 billion forgotten and unclaimed.¹ You can check if some of it is yours by contacting the Pension Tracing Service.

What state is your State Pension in?

If you’ve paid National Insurance for 35 years or more, you’ll qualify for the full new State Pension. If not, you can make catch-up payments. This can be a surprisingly worthwhile part of your pension planning.    

Pension consolidation tension? 

If you have more than one pension, you may wonder if you should combine them, perhaps in a Self-Invested Personal Pension (SIPP).

For a final salary or defined benefit scheme (where you’re paid based on a percentage of your final salary), it’s nearly always a good idea to keep it.  

For a defined contribution scheme (where you save money), it may or may not be a good idea to consolidate. Look closely at exit fees, management and administrative charges, investment performance and choices, and any special features.

If you’re unsure, a financial adviser could offer you advice on how to invest your pensions. 

Think ahead about accessing your pension

Since the government simplified the rules around taking money out of pensions in 2006, it’s been up to individuals to manage how they go about it. You can take out 25% of your pension pot tax-free within certain limits, and you can withdraw money as lump sums, or gradually, like an income.

Pension freedom can be a good feeling, but it comes with responsibility. You may want to seek pension advice to help you decide how much to take out, taking tax and other regulations into account. It could be a bit early to think about this for some, but if you plan to enjoy a lump sum, it would help to know how big that lump sum could be. 

Watch out for scams

As you approach retirement age, you need to be on your guard against pension scams. It’s illegal to cold-call about pensions, so that in itself should set alarm bells ringing if someone tries to contact you.  

Be suspicious of anyone who offers you a free review or higher returns, puts you under pressure to transfer, says you can have your pension before age 55 or asks for personal or bank details.  

Make sure you’re the one contacting a pension-related organisation. The Financial Conduct Authority offers some helpful advice on how to be ‘ScamSmart’.  

Every last investment

As well as pensions, you may have other investments and savings like funds, bonds, Individual Savings Accounts (ISAs), Personal Equity Plans (PEPs), shares, crowdfunded projects, currency, antiques, or even your own home, or a second home. Assess the value of everything and consider the process and time it will take to access your assets. 

Keep track of your savings

Like pensions, it’s also common to lose track of savings. Many of us are too busy making money to keep track of it. My Lost Account is a service that can help reunite you with your lost savings.

Next steps

Once you’ve thought about your future lifestyle and budgeted, you’re better equipped to decide what to do next. Let’s look at some of your options:

Get organised for a ‘final push’?

You could do a ‘final push’ on savings, putting as much as you’re allowed into tax-efficient vehicles like a pension or ISA.  

Pension push

Your private pension contributions are tax-free up to certain limits.  

You usually pay tax if savings in your pension pots exceed 100% of your annual earnings. You also have an annual allowance, which is the most you can save in your pension pots in a tax year before you have to pay tax. You’ll only pay tax if you go above the annual allowance. This is £60,000 this tax year.  

If you haven’t used your annual allowance in the last three years, you may be able to backdate it. 

ISAs all round

You can save £20,000 this tax year in an ISA. If you have a wife, husband or civil partner, you could encourage them to use up their ISA allowance. If they’re paying higher or additional rate tax, they could benefit from using their pension allowance too. 

Investments

It could be a good time to reassess how much risk to take with your investments. As you get closer to needing your money, you may want to move it into lower-risk investment options. Or maybe separate out money you’ll need later, so you can aim for higher returns on your ‘later’ savings.

When you’re ready, you’ll need to make the change from investing for growth to spending, perhaps aiming for income. You may want to ask for investment advice. Be ready to adapt your investment style.  

To work, or not to work?

Keeping your total savings in mind, you could decide to stop working earlier than expected. Or maybe decide to carry on working longer or take up consultancy work or directorships. According to the Office for National Statistics, the number of people 65 years and over in employment has increased².

Sometimes, it’s not about the money – it could be about changing to a more meaningful career or choosing to work in sectors that conventionally offer lower pay such as charities. 

Release equity?

House prices could mean you view your house as an investment, rather than just somewhere to live.  

If you have an empty-enough nest, and you’d like to streamline maintenance and possessions, downsizing could be something to build into your long-term plan. 

Taking cash flow management to new levels

It’s up to individuals to plan their retirement income, but balancing daily cash needs with long-term plans can be challenging. Cash flow management is a task that might motivate you to ask for professional wealth management.  

Sophisticated online tools can help you plan a sustainable income. They take into account your assets and circumstances, and external influences like returns on investments, tax and inflation. You can ask ‘what if’ questions, for example ‘When can I retire?’, to see the possible effects of decisions you could make. There are many powerful projection tools to help you keep up with a fast-moving financial world. 

Letting go of a business

If you’ve spent many years nurturing a successful business, deciding to move on can be challenging and emotional.  

It’s best to start preparing for the sale of a business at least a year or two in advance as it can be time-consuming to determine the value and find a suitable buyer. You could also benefit from time to create tax-efficient plans to make the most of any lump sum you may suddenly have. This is a time to consider experienced professional advice. 

Letting go of a relationship

Unfortunately, a significant number of marriages end in divorce. Going through divorce at a time when you’re preparing to retire can be especially stressful. As well as the usual issues of dividing shared assets, you may be worried about having enough to live on in retirement. Should this happen to you it is vital that, as well as speaking to your solicitor, you also obtain the advice of a financial adviser. 

Home for the next generation

You may want to help a young person onto the property ladder. There’s normally no inheritance tax to pay when giving away your home to your children or grandchildren, if the value is below £500,000. You will need to pay standard inheritance tax rate of 40% on any part of the estate that’s above this.  

There’s normally no inheritance tax to pay if you move out and live for another seven years so this could be worth factoring into your plans. It could be worth it to see your loved ones secure in their own home. 

Prepare for the unexpected

While you’re planning your future, take a moment to imagine what would happen if something went seriously wrong. Critical illness and life insurance will help offer extra protection for you and your loved ones by minimising any financial impacts. There are several things to consider such as the type of policy you want, when you need it and how to buy it. 

Fees

Financial advisers almost always charge some sort of fee. It could be a percentage of your investment, a fee for their time, or an administration charge. Make sure you understand fee levels and structures and don’t be afraid to ask questions about charges or anything else.

Advisers must be clear upfront about what their fees are and agree with you in advance how you’ll pay them. Many advisers offer a first consultation for free. If you’re not sure if you need advice, you can make an appointment to find out what they can do for you. 

Feel confident

Professional financial advice can be a boost to your later-life finances and to your peace of mind. Getting organised for change and feeling confident about the future will really help you make the most of your later years. 

Sources

¹The Association of British Insurers -  The Adventure of the Lost Pensions  
²Office for National Statistics - People aged 65 years and over in employment, UK: January to March 2022 to April to June 2022