After a career spanning seven decades and more than 160 Hollywood blockbusters, Sir Michael Caine has announced he is retiring at the ripe old age of 90.
The enigmatic star, synonymous with so many iconic character portrayals, has spoken of his decision not to pursue any further roles and end his film acting career on a high.
If you are anything like me, you probably don’t want to wait until you’re nearly 100 to access your pension.
So, how can you retire on your terms without – as Sir Michael put it – “blowing the bl**dy doors off” your pension?
There’s more choice and flexibility than ever before when it comes to accessing your retirement savings. You’re more in control but deciding what option is best for you can be overwhelming.
Here are some answers to questions financial advisers get asked all the time.
What are my options in retirement?
There’s a lot to consider when choosing the options available to you for accessing your retirement benefits from pensions.
They are mostly based on a defined contribution (DC) pension, although some consideration is given to those with defined benefit pensions.
As your financial needs in retirement are likely to change over time there’s nothing to stop you having a combination of these options, perhaps over a period of time, to offer the flexibility you need. It’s best to discuss your options with a financial adviser to help you put in place what’s right for you.
Can I withdraw money from my pension pot?
Yes, but you must have reached a certain minimum pension age to access your pension pot. This is usually 55 but is due to rise to 57 in 2028. You may be able to withdraw your pension earlier if you’re disabled or seriously unwell, but the rules depend on your pension scheme.
You can withdraw money in several ways:
- Drawdown is a way of taking money directly from your pension, with no limits on withdrawals, subject to the value of your pension pot. You can choose to move all or some of your pension into “drawdown” once you have reached 55. You can then use the money you withdraw however you wish. The first 25% you take is tax-free. After that, it’s liable to income tax at your marginal rate.
- Partial or total withdrawal allows you to withdraw lump sums directly from your unaccessed DC pension. This is known as “uncrystallised funds pension lump sum) and works differently to drawdown. The 25% tax-free rule applies, although HM Revenue and Customs could apply an emergency tax to a large withdrawal, which you will have to claim back.
Beware of pension scams as you’re nearing pension age. Criminals are more likely to approach you to try to convince you to withdraw or invest. They may falsely claim you can access your pension before you’re 55. If you’re ever unsure, talk to your adviser.
Can I gain an income from a pension?
Yes, an annuity – a product you can purchase with your pension fund – converts your retirement pot into an annual pension, giving you a guaranteed income for life.
Although the popularity of annuities has declined in recent years, they should not be dismissed as an option – especially as part of a diversified approach to retirement planning.
Rates tend to be better the older you are, and it’s always worth looking for an enhanced annuity to improve your rate further.
What if I do nothing?
That’s an option – to leave your pensions as they are. Your pension investment will continue to be subject to market volatility. There are no guarantees, but you may be able to grow your pension funds further.
This means, when you are ready, your tax-free cash lump sum and pensions could be worth more. But if you’re unsure, an adviser can discuss your options with you and help you plan ahead.
Weighing up your options with an adviser
It can be overwhelming with so much choice on offer, but you don’t have to decide alone.
A financial adviser can help you understand the main considerations when assessing your retirement benefits and discuss how to work out what you will need.
They can also help you understand any tax implications and put a plan in place that’s bespoke to you.
Gary Walker is founder and managing director of Aberdeen firm Gary Walker Wealth Management, a principal partner practice of St James’s Place.
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