As retirement gets closer, who can help you make the right decisions?
National Pension Awareness Week begins on 15 September. You may or may not have heard of this yearly event, but it’s something that could help you understand more about this important aspect of your financial future. It could be especially useful to people approaching the age when they can choose how – and whether – to start taking money from their workplace or personal pensions. During this time in particular, organisations like Aviva help people get talking about pensions.
At some point, you’ll have decisions to make, and it’s natural to feel a mix of anticipation and uncertainty about these. At Aviva, we’re on a mission to get people talking about pensions, because talking is the first step towards getting to grips with the options you have. We’re here to help with that.
Understanding your retirement options
When the time comes to access your pension, you have several options to consider. The first thing to be aware of is that you don’t have to take any action when you reach the minimum pension age of 55 (or 57 from 2028). This is just the age from which you have the option to start drawing money from personal or workplace pensions. You may decide you still have some time to go before you retire, and want to leave your pension money invested for now – not forgetting that the value of an investment can go down as well as up and you could get back less than invested.
Each choice comes with its own set of benefits and implications, so it’s essential to explore what works best for you. Here’s a basic outline of the most common options:
- Taking a lump sum: you can choose to withdraw a portion of your pension pot as a lump sum. Typically, you can take up to 25% tax-free, which can provide a financial boost for immediate needs or investments.
- Annuities: this option allows you to convert some or all of your pension savings into a guaranteed income for a set period. Buying an annuity can offer peace of mind, knowing you have a guaranteed income stream. You might decide this would be the right option at the start of your retirement, or later on – though most providers set a maximum age at which you can buy an annuity. Typically, this is between 80 and 85.
- Drawdown: with this flexible option, you can withdraw money from your pension as needed, while keeping the rest invested. This approach allows you to adapt your withdrawals based on your lifestyle and financial needs.
- Combination of options: you don’t have to choose just one route. Many people find that a combination of these options works best for their unique circumstances, providing both immediate cash flow and longer term security.
Why talk about pensions?
During Pension Awareness Week - and other events across October and November that make up what we call Pension Engagement Season - Aviva will be offering people the chance to find out more about the way pensions work, with webinars and fresh insight on this website.
As you weigh up your options, it’s crucial to consider not only your own financial needs but also those of your family, or others who depend on you. This is one of the reasons we encourage people to talk about pensions – to your family certainly, but also to friends, colleagues, employers or advisers. Each may offer different perspectives, knowledge, or even share their own experiences. All of this can enhance your understanding of financial planning.
Pensions and family financial security – what to consider
Other people are likely to figure in your thoughts as retirement approaches. For instance, if you have a partner, will they finish working before or after you? Do you need to provide for children or other people who may depend on you? Maybe parents, grandparents, grandchildren, siblings, or close friends.
Many pensions offer benefits that can extend to your family. For instance, some plans provide ‘survivor benefits’, which can give financial support to your spouse or dependants if you were to die before them. This added layer of security can be invaluable for some people.
Making choices that work for you and yours
- Your lifestyle: what sort of retirement do you see for yourself? The amount of income you’ll need will depend on this. Do you plan to travel, pursue hobbies, or perhaps support family members?
- Longevity: many of us are living longer, so it makes sense to plan for a retirement that could last 20 years or more. Aiming to make your income last is a vital part of your decision-making process.
- Inflation: as we all know, the cost of living can rise over time. Consider how your retirement income will keep pace with inflation.
- Tax implications: different options come with varying tax consequences. Understanding these can help you make the most tax-efficient choices for your retirement income. This is one of several considerations that you may want to talk over with a financial adviser, who can provide personalised advice tailored to your situation.
Talk to someone you trust
Speaking with someone you can rely on could help relieve any stress or anxiety you may feel about your financial journey, especially when you’re starting to consider the choices you need to make to turn your retirement plans into reality. Remember, you don’t have to navigate this path alone.
Take the next step with confidence
Aviva want to help people discover that pensions don’t have to be confusing or scary – even when you’re working your way through retirement options. On our Financial Wellbeing Hub, you’ll find links to information and explanations about the options you’ll have when it comes to accessing pensions. It’s worth a look. And above all, don’t hesitate to have those conversations. Now more than ever, it’s time to talk about pensions!
