1. Look at your income options
Ensuring you have fully considered how you will fund later life is a crucial part of the pension planning process. Drawdown normally allows you to take up to 25% of the value of your pension as a tax-free lump sum and keep the rest invested in a drawdown plan. You can then take taxable withdrawals from the rest, as and when you'd like. Any withdrawals you take from your drawdown plan will count as income for tax purposes. On the other hand, partners may want to consider annuities and the role of joint annuities in providing an income after the death of a partner. 85% of annuities are purchased on a single life basis, but these do not provide an income to the surviving spouse after the death of the annuity holder. Men tend to have bigger pension pots, to be older and to die at an earlier age than their spouses, which means many women lose a significant source of their retirement income when their partner who held a single annuity dies.
2. Know your tax implications
There are a number of different ways you can access your pension savings, and there are tax implications for each of these so it pays to know ahead of time before you draw anything out of your pension pot. Most people accessing their pension at 55 years old will be able to take 25% of their pension tax-free but if you take it out as income all in one go, you maximise the tax you have to pay.
3. Factor in life events
Whether it’s a new addition to the family, property or big travel plans, you may need to use part of your retirement income to financially support family members. Ideally, aim for small, consistent contributions when you're working in a full or even part-time capacity as this can help top up your pot for later life. It’s important, where possible, to maintain your earnings and pension contributions as much as you can so you can comfortably afford everything the future may bring with it. Launched specifically for the Pension Engagement Season, Scottish Widows’ #PensionMirror is a handy AI-powered tool, to help you get more engaged with your pension planning and ensure you’re on the right track for what you want the future to look like.
4. State Pension entitlement
Our latest Retirement Report shows that just over half (54%) expect the State Pension to eventually form a meaningful portion of their retirement income, with three quarters (75%) calling it hugely important in helping them pay for everyday necessities so it’s well worth knowing your entitlement ahead of time. You can check your projected State Pension entitlement and if there are any gaps that you might be able to top up. For instance, if you have been looking after children and haven’t earned over £12,584, you’ll be able to apply for national insurance credits to cover these years. You can do all of this at: gov.uk/check-state-pension.
5. Track down any lost pensions
Track down lost pensions, using the Government’s pension tracing tool and consider if you should combine them into one so it’s easier to manage, it could save you money too. Visit Pension Wise (www.adviseme.co.uk) – the Government’s free service for over 55s. It’s also worth remembering that if you have any gaps in your National Insurance records, you can claim NI contributions going back to 2006 until 5th April 2025.
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