Are you a pensions winner or loser?

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Since last month, anyone over 55 has been able to spend, save or invest their entire defined contribution (DC) pension exactly as they wish.

However, before you rush to change your pension arrangements, find out who the new regulations are good for and who they're not.

Green light: if you want early access to your pension

Radical reforms mean that you gain much more control over your retirement savings. Importantly, you don't have to buy an annuity unless you want to. Instead, you can take all the money in one go (paying tax on 75 per cent of it), or you can take your 25 per cent tax-free lump sum and leave the balance in drawdown.

You can even use your pension as a bank account, taking money in small lump sums, with a quarter tax-free each time and the rest taxed as income.

This is great news if you need or want to retire early as you can start spending your personal or workplace pension before state support kicks in.

And, if you're still working, it means you can tap into money that was previously locked away. You can invest it elsewhere (many people are planning to buy property), use it to pay off debts, or spend it on a really long holiday.

Calculate your pension income options

Green light: if you withdraw the money slowly

If you can phase your pension withdrawals over several years you could minimise how much tax you pay significantly, or avoid it altogether.

As an example, if you took £10,000 a year over five years, you'd get a tax-free sum of £2,500 each time and be taxed on the remaining £7,500.

With a personal allowance of £10,500 you could feasibly get your hands on the cash entirely tax free, although the tax office will include your state pension in the calculation so you may prefer to defer taking payments for a few years.

If you then park the money in an individual savings account (ISA), you keep it out of the tax man's reach permanently. All adults currently have an annual £15,000 tax-free ISA allowance so there is a lot of scope to reduce your tax liabilities with careful planning.

Calculate your pension income options

Amber light: if you end up paying more tax

There is a sting in the tail to maximum flexibility: you could be dragged into a higher tax bracket. From April, any pension withdrawals in excess of the 25 per cent tax free sum are taxable at your marginal rate. This is your tax band once all your income, including any pension withdrawals, has been added together.

Everyone has a tax-free personal allowance – which will be £10,500 for the 2015-2016 tax year – but any income above this is taxed at 20 per cent up to £31,865, 40 per cent from £31,866 to £150,000, then 45 per cent over this.

If you withdraw too much from your pension in one year you could face a shock tax bill and once you've taken money out of your pension fund you can't give it back.

For example, if you earned £20,000 a year and then cashed in a £30,000 pot in one go you would end up paying around £4,600 in tax. Extra income from a pension can also affect eligibility for means-tested benefits so it pays to do your sums.

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Amber light: if you have children and grandchildren

The government has also decided to change the tax treatment of pensions upon death, so if you have income from alternative sources such as savings and property, you may want to leave more money in your pension pot to pass on to your family.

From April this hated 'death tax' will be scrapped entirely if you die before age 75, whether your nominated beneficiary chooses to take the money as a lump sum or draw an income from it through drawdown.

Even after age 75 they will only pay income tax at their personal rate (or 45 per cent if they take it as a lump sum), rather than the 55 per cent that was previously charged.
Amber light: if you are too risk-averse

Drawing money from your pension and stashing it in a cash savings account may seem like the safest option but there are hidden dangers. First, most savings are subject to tax at 20 per cent and second, the pitifully low interest rates on offer make it impossible to keep up with inflation.

This little word is the saver's worst enemy because it erodes the spending power of money over time. So, if the price of goods and services goes up by two per cent your savings need to grow by at least the same rate otherwise your money will be losing value in real terms.

Red light: if you need a guaranteed income in retirement

Annuities aren't popular but don't dismiss them out of hand. They are still the only way to secure a guaranteed income for life and that is an important lifeline for many people with smaller pensions.

Rates are very poor but you can usually get a higher retirement income if you shop around, and insurance companies also offer enhanced annuities that pay a higher income to people with certain medical conditions, which reduce their life expectancy.

The uplift can be as high as 40 per cent and you might qualify if you smoke, take prescription medication or have high blood pressure.

Red light: if you're a big spender

The temptation to spank the whole of your retirement savings could prove too much. If you have other assets to fall back on and you can afford it, great. But there is a danger that people will run out of money within just a few years of retiring if they don't show great restraint.

People also tend to underestimate how long they will live, so managing money over the long term can be difficult. Not only do you have to make the cash last until you die, but you have to take account of inflation and the financial needs of your family.

That's why the government is offering free at-retirement guidance through its Pensionwise service. You may prefer to speak to professional financial planners who can advise you in greater detail.

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Are you a pensions winner or loser?

If, like many Britons, you have failed to save the cash you need to maintain a comfortable standard of living in retirement, one option is to sell your home and downsize to a smaller property, using the money leftover to cover your living costs.
If moving out of the family home is too much of a wrench, however, the good news is that equity release schemes allow you to stay in your house or flat while still using the equity built up in it to provide some extra cash. The downside of the schemes, which work a bit like mortgages, is that you may not have much left to pass on to any children or other relatives.
But that's a small price to pay for a reasonable standard of living. For more information, try Age UK on 0800 169 6565.

Choosing the right annuity can have a significant impact on your retirement income. And as with most pensions, you automatically have what's called an 'open-market option' (OMO), you can scour the market for the highest annuity rate.
It is worth checking what your pension provider is offering first, though, as some companies offer guaranteed rates for existing customers that are likely to beat those available elsewhere. The Pensions Advisory Service on 0300 123 1047 is a good place to get some free advice.

On retirement, most people convert their pension fund into a guaranteed income annuity that pays out the same amount every month for the rest of their lives.
However, you can also choose an increasing annuity that pays out smaller amounts in the first few years but offers larger payments further down the line. This may prove a wise move if the rate of inflation remains at over 2%.

It is now easier to work later in life because the "default retirement age" has been scrapped.
People approaching retirement age and worrying about money can therefore choose to work for a few years longer - potentially transforming their financial situation. Other than the extra income from working, these people can look forward to higher state pensions, and higher annuity rates due to their greater age.
They can also benefit from bigger tax allowances and the fact that they no longer have to pay National Insurance contributions. Check out this nidirect website for more details.

You could get a much better rate with an impaired-life annuity if you have a medical condition that is likely to reduce your life expectancy.
Incredibly, even snoring, which is a common symptom of Sleep Apnoea could have an impact.
According to figures from MGM Advantage, a man with this condition could receive an extra £12,000 retirement income over the course of their retirement - or £571.44 extra money each year. Click here to find out more.

To maximise your retirement income, it is vital to ensure that you are receiving all the benefits to which you are entitled. These include the basic State Pension, and in some cases, the additional State Pension.
If you are on a low income, you could also qualify for the guaranteed element of Pension Credit, while those with some savings may get the savings element of this benefit. For more information about these and other benefits such as the Winter Fuel Payment, click here.

Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.


More from High50:
Five ways you risk running out of money in retirement

Should I take my pension as a cash lump-sum

Why an annuity could still be your best pension option

Seven retirement nightmares
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Are you a pensions winner or loser?
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.


The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.

Calculate your pension income options
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