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Time to take your pension?



The latest article in our windfall series looks at what you should consider before using the money in your pension scheme.

2 min read

Although you could start taking your pension benefits from your 50s, ‘could’ is not the same as ‘should’.

Take a look at the big picture

When the time comes to take your pension, it’s important to step back and take a wider look at your overall financial position. It’s also a good cue for you to review your pension investment strategy and broadly know what implications this may have for you individually.

Riaz Mansha, Financial Planning Specialist at Coutts, emphasises the importance of taking a holistic approach before making any decisions.

He says, “Pensions can be complex and in most cases the decisions you make can’t be undone. Making sure you get it right at the outset is imperative.

“As long as you have an income that can be drawn from other assets – for example, income from rental property or investments – you should consider leaving your pension benefits untouched to allow time for your funds to grow until you need them.”

What should you consider when you finally retire?

It’s increasingly rare for people to have a set retirement date. In fact, it’s not uncommon for many professionals to continue working in some capacity for 10-15 years beyond their intended retirement age.

Importantly this is not because of financial pressures, although of course this helps. With people living longer and in better health it’s more a matter of ‘keeping the grey matter active’ over the years when they are still feeling energised and not at all ready to step back from the world.

Riaz observes, “Many of our clients choose to take multiple non-executive directorships or pursue a passion in a business without the same financial pressures that have driven their careers so far. These options can see them continue to earn even if they describe themselves as ‘retired’.”

Options you might consider are:

  • putting off taking your pension in the initial years 
  • phased withdrawals that match your changing needs and income
  • consolidating diverse pension plans into a single scheme, but while giving full consideration to any costs or fees
“As long as you have an income that can be drawn from other assets you should consider leaving your pension benefits untouched to allow time for your funds to grow until you need them.”
Riaz Mansha, Financial Planning Specialist at Coutts

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What about the Lifetime Allowance?

An important consideration for many Coutts clients is the Lifetime Allowance (LTA). This is the maximum amount that you can draw from your pension fund – including cash lump sums and income – without triggering an additional tax charge. This is currently £1.03m for the 2018/19 tax year.

Over the long period of investing that typifies pensions you could accumulate this level of benefit without noticing, particularly if you have a mix of workplace pensions, personal pensions and self-invested pension plans. In these circumstances it’s important to understand what options are available and what is best for your individual circumstances.

Investing in a long-term future

Ultimately, you should see your pension investments as just one aspect of a long-term wealth management plan.

Riaz highlights the importance of taking the long view. “At Coutts we understand that our clients seek to maintain their wealth over the long term. Pensions are a great way to invest for your future and should be a part of everyone’s financial planning. When you’re approaching the age that you can start making use of your pension investments, I would urge you to seek advice from qualified professionals before making any decisions.”

Tax reliefs referred to are those applying to UK residents under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

As people live – and work – for longer, the role of pension plans is changing. More and more people continue working past the traditional retirement age, reducing the dependence on a pension income for a number of years. It’s vital to understand your pension benefits in the context of your other assets and overall financial position. Pensions can be complex and you should seek professional advice if you are unsure about the right solution for you.

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With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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