APPROACHING RETIREMENT
Lee is 50 years old and is looking to retire in the next 15 years. Lee has a number of different pension pots that he’s accumulated while working at different jobs.
APPROACHING RETIREMENT
Lee is 50 years old and is looking to retire in the next 15 years. Lee has a number of different pension pots that he’s accumulated while working at different jobs.
Lee’s wondering how he can combine his pension pots and work out how much he might have when he eventually retires. He’d also like to work out what his retirement options are. Pension Consolidation
Put simply, pension consolidation means combining pension pots into one. Benefits of pension consolidation can be for convenience, to potentially achieve better growth or to keep track of pension savings. However, not everyone will benefit from pension consolidation, particularly where someone might lose valuable guarantees (like you might find in a final salary pension scheme) by transferring. Defined Contribution
Defined contribution pensions build up a pension pot using an employee’s contributions and an employer’s contributions (if applicable) plus investment returns and tax relief. Defined Benefit
A defined benefit, or final salary pension scheme is one where the amount an employee is paid is based on how many years they’ve worked for their employer and the salary they’ve earned. Defined benefit pensions pay out a secure income for life which increases each year.
What to consider
Lee’s multiple pension pots are made up of both defined benefit and defined contribution pensions. It’s a good idea for Lee to weigh up the benefits vs risks of combining his old pensions before making his decision. The Money Advice Service provides more detailed information about pension consolidation here.
What does Lee need to consider?
Lee also wants to work out how much money he’ll have to live when he finishes work. To help him estimate how much his current pension might pay in retirement, online pension calculators can help.
Accessing a pension
It’s important to highlight that pension benefits can normally only be taken from age 55 (57 from 2028). As a responsible employer, ensure to signpost the key signs of a pensions scam, which often try to entice savers with early access to their pension pot through pension liberation. Read about the key warning signs of a pensions scam here.
What are Lee’s options for retirement?
Lee can make transitioning into retirement that little bit easier by getting to know his options early.
Drawdown
Pension drawdown is one of the most flexible ways for your employees to access their pension. Drawdown allows employees to take up to 25% as a tax-free cash lump sum and keep the rest invested for later. Find out more about pension drawdown here. Annuity
An annuity is a retirement product that allows your employees to swap some, or all, of their pension savings for a regular income that’s guaranteed to be paid for life. Our Guide to Annuities could help your employees figure out whether an annuity is right for them. Lump sum (uncrystallised funds pension lump sum – UFPLS)
Taking a lump sum is a flexible way for an individual to take money from their pension. It allows them to withdraw their entire pension in one go, or a bit at a time. Each time an employee takes a lump sum, usually 25% of that withdrawal will be tax free. The rest would be taxed as income. For more detailed information for your employees, take a look at our Guide to Lump Sums.
Guidance
It’s also important to point out to employees like Lee that everyone over 50 in the UK has the right to an impartial specialist guidance session from Pension Wise. It’s a free service offered by the government to anyone, with a private or workplace pension, who wants to understand more about their pension options. Financial advice can also be sought by individuals who may need more personal recommendations.
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