Retirement & Pension Planning

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Pensions – Regain Control

People are often confused about their pensions or have simply chosen to ignore them, not considering these as an integral part of their overall lifetime strategy. Performance that would not be tolerated elsewhere is accepted as inevitable. Often policies are scattered between multiple providers and they are left to interpret a bewildering array of paperwork.

Having also witnessed “the most radical changes to pensions for almost a century” which saw the restrictions on how you can draw your pension income, the choices at retirement and suitability of existing pensions has become even more crucial to understand.

Reasons why you should have a pension review

  • Your pension(s) could be invested in funds that aren’t performing well or are no longer appropriate.
  • You could be over concentrated into one particular asset, region or sector, causing portfolio inefficiencies, underperformance and higher levels of volatility
  • Your historic plans may no longer represent value for money or provide the flexibility or investment opportunities that more modern plans can
  • Your current plans may have a restrictive choice of funds, which has likely affected returns and if left will continue to affect them

We can provide comprehensive pension analysis and advice to clients, helping them understand whether their current pension strategy is in line with their objectives and whether or not existing plans represent value for money and are fit for purpose.

In some cases, where the existing plans cannot be continued with, a recommendation to consolidate into a more suitable plan may be recommended.

Benefits of consolidation

  • Access to a wider range of funds – can lead to improved investment returns and better risk management
  • Cohesive investment strategy across all pension assets
  • Improved flexibility at retirement in terms of accessing your benefits

 “Ian and the team at Fish Financial -Thank You. You’ve given me back control. I’m no longer drowning in paperwork and I have peace of mind knowing my investments are being looked after” Sean Saint-Smith, Commerzbank


Download our case study: Pensions – regain control


High earners – Maximising your Pension Fund

Despite the ever changing pensions landscape, pension planning and saving for your retirement are still as vital as ever. Pensions still remain highly efficient, offering tax relief at your highest rate of tax on your contributions, assuming that anything over the basic rate of tax is reclaimed via the individual’s tax return, and therefore are an important part of your overall planning.

Annual allowance planning

The Annual Allowance is the amount you can pay into a pension fund each year and get tax relief. From 6 April 2016, the Annual Allowance will be tapered from £40,000 for those with earnings of £150,000 or less down to £10,000 for those with income of £210,000 or more.

For some, the breaking of the annual allowance limits will still prove effective for their retirement planning, however careful analysis needs to be undertaken.

If appropriate, some people if they act now could reduce their tax liability by carrying forward any leftover pension allowance from previous years.

Lifetime allowance planning

The lifetime was cut from £1.25 million to £1 million back in April 2016 – the maximum amount people can build up in their pension pot during their lives. This is the third reduction in four years, leaving the allowance at less than half the level originally intended, when it was to be inflation-linked from 2011/12 onwards.

 
Lifetime allowance strategy – Our modelling software allows us to understand the impact of lifetime allowance charges and how best to draw income to mitigate this additional tax charge

The lifetime allowance reduction means you need to plan carefully. After April 2016, anyone who breaks through the £1million threshold may be liable to 55% tax on any amount over the limit if the excess is taken as a lump sum. If any of the excess is instead taken as income, the tax charge is 25%, although the income itself will still be subject to Income Tax at the recipient’s marginal rate.

Even for those that are going to breach the lifetime limit, strategies can be identified and implemented that can reduce tax charges, leading to better outcomes in retirement.

Income in retirement – Do clients need a different investment approach when they draw their retirement income?

The 2014 reforms have given UK pension savers significantly greater freedom than they had previously. The reforms have material implications for the investment strategies used for accumulation in Defined Contribution (DC) schemes – in particular, the lifestyle strategies adopted. They also greatly influence the investment choices individuals make in the postretirement period. No longer are pension savers forced to take an annuity – the implications of this for savers, as well as for pension providers, are profound as the various benefits and risks of this new ‘freedom’ are assessed.

The dynamics and risks at play when clients approach retirement or begin to regularly drawdown their portfolios are fundamentally different to those with long time periods to invest i.e. those in their “accumulation phase”.

 

Affects of volatility on a portfolio in drawdown

Pot A has higher average return than pot B, however pot A was exposed to higher volatility during the start of Drawdown

Most methods of managing money (modern portfolio theory, strategic asset allocation, tactical asset allocation, market relative approaches etc.) are designed to “accumulate” money over time. Portfolios tend to correlate highly with market cycles but as long as the client has a long enough time frame to invest, the capital volatility is not an issue, in fact if the client is contributing regularly to the portfolio it can be beneficial due to the effects of pound cost averaging.

However, portfolios being regularly drawn upon for income are less able to tolerate factors such as volatility and short term losses, particularly in the early years.

Click here to understand more about how drawing an income in retirement can affect portfolio longevity – Decumulation paper

We have investment solutions for clients approaching and in retirement. Ones that deliver:

  • Low volatility
  • Avoids short term losses (reducing the risk of timing into drawdown)
  • Generates equity like returns after fees

If you are already drawing capital from your pension or approaching retirement and have not assessed the suitability of your investment’s then we would stress the importance of reviewing these as soon as possible.