SHOP AROUND FOR ANNUITY
One of the easiest things you can do to get the most out of your pension savings in retirement is to shop around for your annuity (a type of retirement contract that provides you with a regular payment, usually for life). Instead of simply accepting the annuity your pension provider offers, you could increase your retirement income by 20 per cent or more by looking for a better rate elsewhere.
Answer all medical and lifestyle questions as fully as possible to see if you’re entitled to an “enhanced” or “impaired” annuity. These pay a higher retirement income if your life expectancy is shortened due to lifestyle, for example if you smoke, or your medical history.
CONSIDER INCOME DRAWDOWN
This is an alternative to an annuity and can produce a greater level of income in comparison. The income levels can be altered to suit your circumstances, within limits, on an annual basis. However, this carries greater risk as the pension fund remains invested. Always seek advice from a financial planner prior to entering into such an arrangement.
MAXIMISE YOUR ISA
Any stage in life is a good time to be putting savings into an Isa (up to £11,520 this tax year). This provides a source of tax-efficient income in retirement that can complement pension income. Particularly as you near retirement, make sure you use your allowance in full. If you don’t use it, you lose it.
DEFER YOUR STATE PENSION
If you can afford to delay drawing your state pension you could be better off in the long run. For every five weeks you put off claiming, you will receive an extra 1 per cent. This equates to an extra 10.4 per cent for every full year.
Alternatively, if you choose to put off claiming your state pension for 12 consecutive months you can elect to take a one-off lump sum payment in addition to your normal state pension.
CHECK WITH TAXMAN
Make sure you’re on the right tax code. Pensioners receive an enhanced personal allowance (the level of income you receive before tax is payable), but some are missing out because their tax code is incorrect. Furthermore, when you reach state pension age you’ll no longer have to pay National Insurance contributions. A simple phone call to the taxman should clarify your position.
• Evan Duffus is a financial planner at Acumen Financial Planning in Edinburgh