Pension income

Why withdrawing pension money to put it in a bank is just crazy!

Why withdrawing pension money to put it in a bank is just crazy!

Research by the Citizens Advice Bureaux reported in The Telegraph on 25th August 2016, suggests that one in three people taking money from their pensions funds are just putting it in the bank. (See the original article here; http://www.telegraph.co.uk/pensions-retirement/financial-planning/thousands-withdraw-pension-cash--then-leave-it-in-the-bank-earni ).

Pension Freedom, pension funds and bankruptcy

Pension Freedom, pension funds and bankruptcy

Back in the old days, (before Pension Freedoms), one of the standard arguments to pay into a pension, other than the obvious one of having an income in retirement, was to protect some of your accumulated assets from a potential bankruptcy. This was particularly important for sole traders, who may in a bankruptcy situation would otherwise lose everything.

The complexity beyond the complexity!

The complexity beyond the complexity!

One of the problems with life, especially within financial services, is you do not know what you don’t know, until you find out. Remember Donald Rumsfeld and his known unknowns and his unknown unknowns? (https://en.wikiquote.org/wiki/Donald_Rumsfeld). What applies to warfare also applies to pensions. Some things are known, some things are unknown and some things are unknowable in advance without direct experience or using an expert.

What will you do with yours?

What will you do with yours?

Lots of the mainstream press had headlines saying that 1 in 5 pensioners had spent all of their pension cash, (18%), following research by the Pension and Lifetime Savings Association, (PLSA). A typical example of the press coverage is the Daily Mail, which you can read here. http://www.dailymail.co.uk/news/article-3420235/One-five-cashed-pension-spent-penny-half-400-000-accessed-pension-pots-worth-50billion-April-took-cash.html

Taxation, client behaviour and social benefit

Taxation, client behaviour and social benefit

Wednesday saw me meeting a young professional who had some savings, a well paid first job and a desire to invest in “real-estate”, as he had read that in a book.

The big tax concessions in the UK are ISAs, pensions and the removal of capital gains tax on a principal private residence, so it makes sense for him to save for a house deposit using an ISA, put some money into his workplace pension and as a medium term aim, get out of rented accommodation and become a homeowner, (with lodgers using the Rent a Room Scheme). It will not be easy and it is far from “sexy”, but given average luck, it should set him on the right road very quickly.

Finessing your pension income

Finessing your pension income

Now we have some real experience of the effect of Pension Freedoms, it is worth re-examining the role of the professional adviser while you are finalising your retirement income. The way you draw your income once you get to retirement can influence the tax you pay and the total fund you will have to spend between now and your demise.

The effect of Pension Freedoms

The effect of Pension Freedoms

The Financial Conduct Authority, (FCA), has published a document giving quite a bit of data about the uptake of Pension Freedoms over the first 3 months they were accessible, from April 2015 to the end of June. The document is available at https://www.fca.org.uk/static/documents/pension-freedoms-data-collection-exercise.pdf if you would like to see it.