It might appear to be an obvious question, but pensions aren’t necessarily as simple as they may seem.
Should I bother with a pension?
Until recently, some pensions offered poor value – high charges, inflexible rules and low income. However, new rules make them more flexible:
There may be more change. Chancellor George Osborne is consulting on the idea of scrapping tax relief on pension contributions, making them more like Individual Savings Accounts (Isas) where money grows tax-free.
Other changes might include:
In pensions, nothing stands still, take some advice and use the most flexible option to enable yourself to take advantage of future changes.
Pension freedoms introduced in April 2015, mean over-55s have additional options for how they use their pensions. So yes, you could blow your pension on a car. But hold your horsepower…
Previously, most people had little option but to buy an annuity. However, under the pension freedoms introduced in April 2015, over-55s have additional options for how they use their pension savings:
So it’s entirely true you could blow your pension on a luxury car.
Or, as the then pensions minister Steve Webb put it in 2014, people are free to spend their savings on a Lamborghini1.
But do the math… or you could face a hefty tax bill.
So let’s say you decide to throw caution – and a comfortable retirement – to the wind and cash it all in for a shiny Lamborghini (£288,840). You’d actually need a pension pot of £415,000 to start with.
That’s because you would be taxed on 75 per cent of the money. As figures from consumer group which show2, the tax you would pay the Treasury would be £126,206 – enough to buy George Osborne a Porsche 911 (£120,598).
Now that’s just wrong.
A financial adviser can help you with all aspects of retirement planning – whether you’re starting to save for a pension or approaching the stage in life when you need to use it.
So will consulting an adviser make the difference between sipping 1982 Bordeaux – in Bordeaux and glugging flat lemonade on the prom? Maybe.
Understand what an adviser can offer
An adviser can work alongside you as you move toward your retirement goals. They will:
But how much will it cost?
Some people are put off seeking financial advice because of the perceived cost. The key thing to remember is that good financial advice should cost less over the long term than no advice at all.
Initial consultations are often free, but do check. This meeting should enable you to judge whether paying for financial advice will deliver good value.
Following the Retail Distribution Review (RDR) in 2012, financial advisers are prohibited from charging commission on products that could be broadly described as investments. This includes pensions.
Advisers may take payment in a number of different ways. Always agree fees before engaging an adviser
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