After working and contributing to a pension, now is the time to make the best of that money. So where do you start?
There are many things to consider – your immediate financial needs, your future requirements, your tax position and your personal circumstances (health and lifestyle).
There are advantages and disadvantages to most schemes and strategies that should be carefully considered before any action is taken.
Income drawdown
Income drawdown is where you take a regular income from your pension pot, but leave the rest invested. This means the rest will continue to benefit from any investment growth.
The advantages are that it provides income levels that are very flexible and can be paid in many different tax-efficient ways, depending on your financial circumstances. If investment growth is favourable you could increase your level of income over time if required. Any capital that remains after your death can be left to your beneficiaries - depending on your at age at the time of your death this could be Inheritance Tax free. The disadvantages are that the capital is not guaranteed and you may need to review your level of income.
Annuities
An annuity is where you use your pension lump sum to buy an income from an insurance company.
Annuities offer a guaranteed income for life. As such, they are a simple-low risk solution.
The disadvantages are that they aren’t that flexible, there’s no potential investment benefit, and the chance you might lose some capital if you die sooner than expected.
Pension Freedoms
Anyone over the age of 55 can now take their full pension pot in cash if they want to. The first 25% will be tax free, with any additional amounts taxed as though it were income in that year. It is important that you take independent advice to ensure that withdrawals above the tax free amount are done so tax efficiently where possible.
For more information call Keith Galgut on 07775 507 331.
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