The Lawyers Guide to Retirement Income Planning

When it comes to planning your retirement income there’s a lot to think about. It can seem difficult to know where to start and it’s sensible to take professional advice. But before you do, here are seven factors you might like to consider before speaking to a Wesleyan Financial Consultant – they are specially trained to understand lawyers’ financial needs.

1. Understand how much income you will need at different stages of your retirement

Unless you know how much income you will need, or would like, throughout the different stages of your retirement, it will be difficult to plan effectively.

On average, the lawyers we surveyed estimated they would need £48,458 per year to live on in retirement*.

Your monthly expenditure in retirement may look significantly different:

• Usually, you will have stopped making monthly pension contributions.
• Your mortgage may be paid off, or monthly payments significantly reduced.
• Your children may have left home, helping to reduce your household bills.
• As you will have stopped working you will no longer need to pay for travel to and from work.
• You may want to work past your normal retirement date.
• You may spend more on holidays and leisure activities.

When calculating your retirement income and expenditure you may also want to factor in making ‘gifts out of income’ to your children or grandchildren – to help towards paying school fees, mortgage deposits, and so on.

Talk to a Wesleyan Financial Consultant about:

• what your personal expenditure throughout retirement might look like, and how this could differ from your current income and outgoings
• whether you plan to return to work following retirement, and how this might affect your pension benefits.

2. Working past your normal retirement date

Over 60% of the lawyers we asked said they expected to work after their preferred retirement age*.

As you approach your ‘normal retirement age’ you may wish to reduce your working hours or take on a position with reduced responsibilities.

If you are a partner, you may be looking to sell your share whilst continuing to work at the practice in a reduced or lesser capacity. Alternatively, resigning your partnership may result in the sale of the practice or a merger. Any lump sum or income received from this will have tax implications and need to be carefully considered as part of your retirement income.

Alternatively, you may choose to continue working in the profession in a wider capacity, through shorter or longer term consultancy roles.

Talk to a Wesleyan Financial Consultant about the financial implications of continuing to work in early retirement, and how this may impact your pension and future income.

3. The best time to access your retirement income streams

When planning your retirement it’s important to think about all of the potential income streams you will need to access. This may include:

• Personal pension plans
• ISAs
• Savings accounts
• Property, including second homes and buy to lets
• Equity release from partnerships, giving a capital lump sum, rather than income
• Stocks and shares
• Other investments

You will need to consider the best time to access these, for example:

• you may not be able to get your money as quickly as you need it as some investments can’t be cashed in instantly – property, for example, can take time to sell
• you may not wish to sell shares until the market conditions are most favourable
• there may be financial penalties for surrendering investments early
• there could be tax implications on your investments which could impact your decisions on when to cash them in or take your pension benefits.

Talk to a Wesleyan Financial Consultant to plan access to your income streams at the time that will best suits your individual needs.

4. Understand when you can access your pensions

Pensions are front of mind for many when considering retirement income. But the age at which you can access your pensions depends on a number of factors and it’s important to understand how your individual circumstances will affect this.

In addition to applying for credits, you may be able to make voluntary contributions to fill gaps in your National Insurance record (if you are eligible).

Talk to your Wesleyan Financial Consultant about what your retirement income from the State Pension is likely to be, and how to make up any shortfalls in your NICs record.

5. Understand the 2015 pension flexibilities

Following the introduction of ‘pension freedom’ in 2015, you can now take the whole of any defined contribution pension as a cash lump sum (currently from the age of 55) – regardless of whether you have retired or not.

Discuss the 2015 pension flexibilities with a Wesleyan Financial Consultant and start thinking about which option(s) might be best for you. This may include annuity only schemes, where no lump sum is available. You may choose to:

• leave your pension pot untouched
• use your pension to buy a guaranteed income for life
• use your pension to provide a flexible retirement income (flexi-access drawdown)
• take your pension pot as cash
• take your pension as several lump sums
• mix your options.

6. Your entitlement to the flat rate State Pension

The State Pension and Additional State Pension have now been replaced by the new flat-rate State Pension. Only those with 35 years of qualifying National Insurance Contributions (NICs) will be entitled to the full flat-rate pension (currently £159.55 per week). A key consideration will be whether you have had any breaks in your NICs, due to child care or career breaks, for example.

You will need to make sure you know whether you qualify so that you can make accurate calculations about your retirement income. If you are unsure as to whether you will have enough qualifying years you can check your National Insurance record to see if there are any gaps: at www.gov.uk/check-nationalinsurance-record. You may then be able to apply for credits to fill these gaps.

In addition to applying for credits, you may be able to make voluntary contributions to fill gaps in your National Insurance record (if you are eligible), and find out how much it will cost you to do this.

Talk to a Wesleyan Financial Consultant about what your retirement income from the State Pension is likely to be, and how to make up any shortfalls in your NICs record.

7. Protecting your allowances

The Annual Allowance (AA) is the total amount that can be contributed to your pensions each year, whilst still receiving tax relief. The AA for the current tax year is £40,000.

If you’ve flexibly accessed your pension benefits, the Money Purchase Annual Allowance (MPAA) is triggered. The MPAA is the amount that can be paid annually to your money purchase arrangements whilst still receiving tax relief. The MPAA for 2017/18 is currently under review by the Government, but it is expected to fall from its current level of £10,000 to £4,000.

The Lifetime Allowance (LTA) is the total amount you can build up in all your pension plans over your lifetime, whilst still receiving tax relief. On 6 April 2016 the LTA was reduced from £1.25 million to £1 million. If the total value of your pensions exceeds the LTA when you take benefits you may incur a tax charge on the excess – reducing your retirement income.

To allow you to protect existing pension savings you have against the reduction in the LTA, HM Revenue and Customs (HMRC) introduced two new forms of LTA protection in April 2016:

• Individual Protection 2016 (IP16) – which gives you a personal LTA equal to the lower of a) the value of your pension benefits at 5 April 2016 or b) £1.25 million.
• Fixed Protection 2016 (FP16) – which gives you a personal LTA of £1.25 million.

The LTA protections available are subject to eligibility criteria being met.

Talk to a Wesleyan Financial Consultant about applying for protection to avoid paying unnecessary tax on your pension income.

Enjoy a free overnight stay for two

Book a no-obligation financial review today and after your appointment you can enjoy a free overnight stay, for two people, in a selected hotel in UK or Ireland (terms and conditions apply).

Call us on 0800 980 8929 quoting reference 51019, or visit www.wesleyan.co.uk/appointment

**********

This information is based on our current understanding of legislation. Legislation and tax treatment can change in the future.

*Research based on a survey of 2,624 professionals (203 Doctors, 201 Dentists, 101 Lawyers, 101 Teachers and 2018 general consumers) by Censuswide on behalf of Wesleyan, January 2017. ^which.co.uk/elderly-care - February 2017.

Advice is provided by Wesleyan Financial Services Ltd. WESLEYAN’ is a trading name of the Wesleyan Group of companies. Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority and is wholly owned by Wesleyan Assurance Society. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone calls may be recorded for monitoring and training purposes. 06/17.

 

 

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