Tips for employees retiring in 2017

Tips for employees retiring in 2017

Provider of financial education in the workplace Wealth at Work has created tips for those planning to retire in 2017 which advisers can share with clients.

Those who are approaching retirement and have a defined contribution pension have a lot of decisions to make as a result of the pension freedoms which came into force in April 2015.

From April 2015 individuals over the age of 55 began having full access to their pension at only marginal rate taxes - and can pass on a pension tax free. 

Wealth at Work has created a short guide for those planning to retire in 2017.

Its tips are as follows:

1) Understand the options

The pension changes meant that people now have greater flexibility and freedom over how they access their DC pensions. With responsibility comes risk, so employees need to make sure that they take their time, fully understand all of their options and that they’re armed with all the facts. 

2) Collate information on all assets

Before employees start to make any decisions based on their retirement plan, they need to gather up to date information on all of their pensions and savings, and what they are all worth.  If they have Isas, shares, deposit accounts, or any other assets, they should look at these as other potential forms of income in retirement. 

3) How much income do your employees need and want?

Employees need to work out how much income they are going to need in retirement, including essential income to meet their day to day living expenses including household bills, and discretionary income for holidays, hobbies and so on.  There is a budget planner available on the Money Advice Service website they can use. 

4) Can they afford to retire?

Do employees have enough put by to be able to afford to retire, or do they need to work a little bit longer, or part time? Research has found that most people live longer than they expect they will, so they must keep this in mind when working this out.

5) Income drawdown, annuity, or a combination?

Income drawdown is no longer the preserve of the wealthy, and really just means that individuals can choose how and when they access their pension, but they should ideally get advice when deciding. 

6) Will employees pay unnecessary tax?

If they go down the income drawdown route, employees need to make sure they don’t pay any unnecessary income tax. Usually 25 per cent of their pension is tax free, and the remaining 75 per cent is taxed as earned income. Employees should look at their options, for example, they may be better off taking a smaller amount each year from their pension and top it up with savings from their Isa to use for income, as this is paid tax free.

7) Employees should make sure their pension beneficiary details are up to date.

In 2015, the chancellor abolished tax on death on defined contribution pensions for anyone who dies before the age of 75. This means that any remaining pension can pass onto their beneficiaries tax free, subject to them not exceeding the lifetime allowance limit, and providing the company pays out within two years of date of death.