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Planning early for retirement: steps to take before you reach 50

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
04/11/2015

You don’t have to wait until you’re approaching retirement age to think about planning for later life. There are a number of actions you can take now, says pensions expert Martin Tilley.

I’m sometimes asked how long before retirement should people start to prepare and plan and my answer is the day they first start earning. However, this is unrealistic and financial pressures in early working life mean that often pensions are not taken seriously until people reach their forties.

Many people also worry about retirement and would rather put off any planning, burying their head in the sand and hoping for the best. This is of course not the way and such an attitude removes any opportunity to plan for the fateful day when income switches from earned to saved.

The new pension freedoms have injected some much needed positive interest in pensions but all the new options, giving greater flexibility, add to the potential for more confusion and an even greater need to plan from the earliest date possible.

Pension Wise, the new government guidance service is a useful tool but is not available for individuals below age 50. Ideally preparation for drawing benefits should start before that date and below is a guide to some of the action that should be taken.

Identify from when you might like to start drawing benefits: remember that this does not necessarily need to be when you fully give up work as with most pension schemes it is possible to phase drawing your benefits.

Identify all of your pension savings: many working lifetimes include numerous job changes and thus individuals may have several “frozen pensions”. These should be found and updated. A pensions tracing service is available for any lost occupational pensions from previous employers

Obtain values and projections: obtaining current values is one thing but also ask for projections of fund values and possible benefits at your intended drawing dates. Ask if there are any valuable attachments to the plan, such as guaranteed annuity rates.

Check benefit features: some older style plans are unable to offer the new pension flexibilities and asking if the plan provider can accommodate the new opportunities will identify if the plan will be suitable at retirement or whether funds from it might need to be moved to another plan. Ask if you must have a financial adviser, as some firms try and put barriers in the way by refusing to process certain transfer and benefit requests unless advice has been taken. This is a legal requirement for some occupation defined benefit schemes or those holding safeguarded rights but not for money purchase plans.

Find out where the funds are invested: do you understand the underlying investments and do they match your attitude to risk which may have changed? Look out for “lifestyle funds” that move asset class dependent purely on your age.

Get projections of your state pension: you can apply though the website – https://www.gov.uk/state-pension-statement for state pension forecasts. The earlier this process is started the more time you will have time to make contributions to top up your pensions if you feel they will be inadequate.

Assess your outgoings and other assets, tax position: be aware of your changing expenditure requirements in the different stages of retirement and how income tax allowances change with age. Also, take into account the most favourable assets to use to provide income, bearing in mind the tax favourable treatment of any pension monies left on your death.

Consider consulting a regulated specialist in retirement planning: help in identifying problems and putting them right several years ahead of time could save you more than the professional fee charged.

Finally and when age 50 has been attained, take advantage of the Pension Wise service: they will be able to give guidance on your pension options, tax implications and tips on what action you might or should take next.

Martin Tilley is director of technical services at Dentons Pension Management

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