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Case study 11: ABI submission to financial advice working group

ABI Rules of Thumb for Retirement Taking Your Money

  • Pension Wise is free, independent and impartial. Talk to them to get help understanding your retirement choices.
  • When considering your options, ask yourself if you want a guaranteed income for life, a flexible income, a death benefit, or a mix. Be aware, you might not be able to get all three.
  • If you take your whole pension pot in one go, or as a number of lump sums, make sure you don’t lose out by putting your money in savings accounts with low interest rates.
  • If an investment opportunity sounds too good to be true, then it probably is.
    - Always be wary of unprompted contact or cold calling offering you ‘advice’ on your pensions or investments – they’re likely scams or very risky.
    - Always check the FCA register of authorised financial services firms if you are not sure.
  • If you have one, check to see what your pension guarantee offers, as well as what you could get from shopping around.
  • If you decide to take more than the 25% tax free allowance from your pension, the amount over the 25% will be added to your total taxable income, and may increase the tax you pay.
  • You should consider whether taking your pot as a number of lump sums over different tax years could mean you may pay less tax than if you take it all in one go.

In retirement

  • Divide the size of your pot by the number of years between your current age and 88 to get a rough idea of how much you can sustainably withdraw on an annual basis. (This should be reviewed to account for increasing life expectancy, and made clear to individuals that people can live much longer than anticipated).
    - Carefully consider the performance of your investments in retirement before setting a safe, regular rate of withdrawal.
    - Consider whether you could manage by reducing your rate of withdrawal in times of poor market performance.
    - The lower your investment returns are, the lower your rate of withdrawals should be.