Pension freedoms are opening the door on a huge source of wealth for many over 55s with money locked away in retirement savings – but sometimes accessing this cash can mean losing valuable benefits.
Financial firm Standard Life has put together a 10 point checklist that reveals the dangers of eagerly taking pension cash without considering the consequences.
Here’s a run-down of their advice:
- Before making any plans, find out if your pension provider supports flexible access. Many small workplace pensions do not have the resources to manage flexible access
- Check if your pension has any death benefits – and if not, consider transferring to a scheme that offers flexible access or consolidating small pot pensions in one larger fund
- Make sure any death benefit nominations or trust arrangements are still relevant, especially where life events like death, marriages or divorce may have changed who you might want to benefit from your money
- Review other savings, like ISAs or cash in the bank to consider whether putting the cash into a pension for extra tax relief will boost the fund
- Have a plan A, B and even C and D for investing in the approach to retirement to make sure any cash gains the maximum tax relief
- Diversify assets to minimise the risk of a sudden fall in money markets decimating your retirement savings
- Look at your state, workplace and personal pensions to co-ordinate withdrawals to leave money intact and growing – for instance deferring the state pension can earn up to 5% interest while taking cash from savings in an ISA is tax-free
- Work out how much money you are likely to need each year in retirement, taking into account interest from savings, dividends, selling assets and the state pension
- Keep accurate records of your decisions and make sure your loved ones can access the money if something happens to you – consider giving a power of attorney, for instance.
- Take advice from the free Pension Wise or Money Advice Service or pay an IFA if your financial affairs are more complicated.
Standard Life’s David Tiller said: “These 10 tips are designed to prompt thought around some of things retirement savers and their advisers may want to look at.”
