Are you over 55 or have started receiving your pension letter? Pensions can be complicated, and many families are unsure of the options that they have and the effect of these on their family. This guide will help to explore the potential options that families have when taking out their pensions and which one may be the best.
What taxes should your family expect?
- When you pay into a pension pot, 25% of this is tax-free, and to take out any more would count towards your annual income and incur tax bills.
- The tax bills that you receive differ depending on how much money you take and how much you exceed your annual income, and so to reduce these, you should try to spread transactions over a number of years.
- If you do not take your pension out correctly, the amount of tax that you have to pay could damage how much of your retirement fund you will receive by eating into your available money.
Do you have the right pension type?
- Everyone over the age of 55 has to consider what to do with their pension pot, and this includes options such as getting regular payments or receiving it all in one go. Some families may believe that this is the best option if their pension is relatively small, if they have more than one pension, or if they have large upcoming expenditure, such as paying off a mortgage.
- However, being 55 is not the only criteria for getting your pension at once. You also need to make sure that you have the right type of pension.
- If you have a workplace or private pension, you do not need to worry, and you will be able to access these funds whenever you choose.
- Unfunded pensions given by services such as the NHS and the army will not allow you to take your money as a lump sum.
- Final salary pensions must be moved to a private pension scheme before they can be taken out as a lump sum.
- If you want to help other people determine whether they should take their pension early, you should consider becoming a financial advisor with Portafina, an FCA regulated firm that gives expert pension advice to families.
How will this affect your families’ financial future?
- Even though this immediate financial gain can benefit your family now and in the future by investing it wisely, such as paying off your mortgage and starting a business, if you do not invest it wisely, this could damage your future finances.
- Pensions are generally used to support you in old age and when you are not working, and so if you choose to take your pension now, it is important that you realise that this means that you will go unsupported throughout retirement.
- If possible, to take your pension early, you should have a second income from a business or job, or be prepared to live off the state pension for the duration of your retirement.
How can you find out more?