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Planning your retirement income

For most of us‚ having the standard of living we want in retirement will depend on making our finances work for us as effectively as possible.

Man looking through binocularsOur information guide covers:   

  • the main financial questions you need to consider as you approach retirement age
  • how to find the right kind of adviser for your needs

You can download our free information guide from the top right corner of this screen or click on the links below: 

Index

 

 

The state retirement pension

You can ask for an up-to-date pension forecast from the Pension Service at any age. Check that the forecast is based on an accurate record of the National Insurance contributions you have made over the years‚ including any home responsibilities protection that you might be entitled to if you have spent years at home looking after the family. If anything looks odd‚ contact HM Revenue and Customs’ National Insurance contributions office.

The age at which you can draw your state pension is currently 65 for men and 60 for women. It will be gradually raised to 65 for women born on or after 6 April 1950. About four months before you reach retirement age you should receive a retirement pack from the Pension Service. This will include a pension forecast and an ‘invitation to claim’.

If you wish to claim your pension at retirement age‚ complete and return the forms as soon as possible. This is very important: you will not get your pension unless you claim it. You can choose to put off claiming your state pension until a later date. If you do you may be entitled to a lump sum or an enhanced pension when you do claim. Further information on deferring pensions is available from the Pension Service.

What next?If you have not received a retirement pack from the Pension Service three months before you reach retirement age‚ contact the Pension Service.

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Private and occupational pensions

If you have a private pension or a pension from your work (occupational pension) the first step is to check your entitlement. Ask the scheme manager for an up-to-date forecast if you have not already got one. Add this to your expected state pension to see whether you will have enough income. Most people need less income in retirement – around two-thirds of your pre-retirement income is a good rule of thumb.

If your pension is lower than you need‚ you have three options: pay in more‚ settle for a lower pension or delay drawing your pension. Ask your pension manager what options you have for paying in more or putting off drawing your pension.

You can usually take about 25% of your pension as a tax-free lump sum. Whether or not it makes sense to do so will depend on your situation. A lump sum is appealing but if you take it the level of your ongoing pension can be significantly reduced. If you claim means-tested benefits‚ check how each option will affect your benefit income.

What next?Contact your pension provider and ask for an up to date forecast. Consider taking financial advice‚ particularly if your situation is complex.

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Buying an annuity

Some private and occupational pensions are ‘money purchase’ schemes. Your contributions‚ and those of your employer where applicable‚ are invested and what you get depends on how well your investments grow. When you retire you have to decide what to do with the fund you have built up and when to convert it to a pension.

The most common option is to buy an annuity‚ usually at retirement age‚ from which you will receive a guaranteed income payable for life or for a specified period of time. You can buy this from the company which holds your pension fund but this may not be the best value annuity available. Always shop around to see whether other companies offer better value products. Some financial advisers specialise in annuities. Here are a few suggestions on what to ask your adviser:

  • How many quotes will the adviser check?
  • Is the adviser linked to a particular company or companies?
  • Should you get an annuity to cover your spouse or partner?
  • What are the pros and cons of different kinds of annuity (‘index linked’ and ‘investment linked’)?
  • Do you have any other options? You can put off buying an annuity and instead draw an income from your pension fund but there are disadvantages to this.

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Are you entitled to any benefits?

Many retired people do not claim all the benefits that they are entitled to. Make sure you do: benefit rules are not needlessly generous so if you qualify for any help you should take up your entitlement. There are two main types of benefits: means tested and non means tested.

Means-tested benefits are paid according to whether your income and savings fall within certain limits. These benefits include Pension Credit Guarantee Credit‚ Housing Benefit (for rent costs) and Council Tax Benefit. Even if you do not qualify for the full benefit you may be able to claim some help. There also is a Pension Credit Savings Credit to assist people with modest savings and private pensions. If you qualify for a means-tested benefit this can help you establish eligibility for other concessions such as help with health costs.

Some benefits are paid to qualifying groups regardless of their finances. These are non means-tested benefits. These include benefits paid in respect of disability and care needs‚ such as Disability Living Allowance (for under-65s) and Attendance Allowance (for over-65s). Most people aged 60 or above are eligible for a Winter Fuel Payment to help with their heating costs.

What next?Contact your local Age Concern office to arrange a benefits check to identify your entitlements. The Age Concern Information Line can provide details of your local office.

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Carrying on working

You may want to carry on working past the standard retirement age. New laws were introduced in October 2006 to prevent age discrimination in employment. You have the right to ask your employer to let you work past 65. If your employer does want you to retire at that age they must give you six months’ notice of this intention.

Despite the new rules‚ you do not have a right to continue to work past retirement age. Think about how you can demonstrate your value to your employer through your experience and skills or by showing qualities such as flexibility and initiative. If you do not want or are not able to continue in your current job‚ think about other options. Increasing numbers of companies are taking a positive attitude towards the recruitment of older staff. A part-time position may fit better round your other commitments.

You can claim your state pension at the same time as working‚ although it counts alongside any salary as taxable income. It is also possible to draw a pension and a salary from an employer at the same time. Alternatively you can put off drawing your state or private pension to build up extra pension later on.

If your reason for wanting to work is not financial‚ explore the voluntary work opportunities in your area. This can be a way of meeting people and getting satisfaction from helping a good cause.

What next?Contact the Age Concern Information Line for more information about the age discrimination rules and/or volunteering opportunities in your area.

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Helen has recently reached retirement age and her husband Vince will also do soin two years’ time … Case study

‘We hadn’t saved as much as we wanted to over the years – other things like the children and the house got in the way. We decided to see a financial adviser to find out what we had and how it might affect our retirement plans. We’d invested bits and pieces in different places over the years and weren’t sure what the overall picture looked like. Some of our investments hadn’t done as well as we’d hoped but the adviser explained our current situation and suggested ways we could reinvest some of the money to make it work better for us.

‘Although I was 60 last year‚ I decided to keep working a couple of days a week. I may give up when Vince does. I don’t have to pay National Insurance now I’m over retirement age. The financial adviser explained that if we want to we can use a bigger proportion of the money we earn now to top up our pension pots.

‘I think we’ll be reasonably ok‚ particularly if we work a bit longer. Even so we’ve become a lot more money conscious. I was pleased to get the Winter Fuel Payment last year. A friend had said I wouldn’t be eligible so I’m glad I checked!’

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Tax

Even if your income reduces when you retire‚ you may find that you have more to do with your tax than before. The Pension Service will notify HM Revenue and Customs (HMRC) when you are due to receive your pension and they will contact you to request details of your other income. You may then have to complete a form each year. The form you are asked to complete will depend on your circumstances.

If you are paying Income Tax‚ check that your liability is being calculated using the right allowances. Your personal allowance for Income Tax increases when you reach the age of 65 and again when you reach 75‚ although this allowance is reduced if you have income
above a certain level. Check that HMRC have assigned the correct tax code to you based on your current situation. Ask your local tax office if you are unsure about how your tax has been calculated.

Increasing numbers of estates are becoming liable for Inheritance Tax‚ paid after the owner’s death‚ partly because of increases in the value of people’s homes. If your estate will be liable for Inheritance Tax after your death‚ do not take any major action without
getting advice. Giving assets away does not necessarily remove them from the tax calculations and you should be careful not to put yourself in a vulnerable position now in an attempt to reduce future tax liability. Never give your home away without first taking advice from a solicitor or financial adviser.

What next?Contact HMRC for information about taxes.

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Taking stock of your situation

We have looked at some of the issues you need to consider to make the best of your financial situation after you retire. You may need to speak to a financial adviser about your options. Before you do‚ however‚ it is a good idea to be clear about what your position is and what you want to achieve.

Make a list of all your assets and liabilities. Your assets might include your house‚ savings and investments and anything else you own that has a value. Liabilities are your mortgage and any other debts. It is usually a good idea to reduce any debt you already have and to avoid incurring any more. There may be other large one-off expenses that you know are going to arise in the future.

Work out what your weekly or monthly outgoings are likely to be once you have retired. Also take account of any expenses that only crop up once or twice a year‚ such as insurance or buying presents.

Remember to include items such as entertainment and travel as well as the basics like housing costs and utility bills. Are there any other ways of increasing your income or reducing your outgoings that you have not yet considered‚ either those covered so far in this guide or others like letting a room out in your house.

What next?If your debts are presenting a problem‚ contact the National Debtline to discuss the situation with a debt adviser.

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Information about financial products and services

Before approaching a financial adviser you may want to find out more for yourself and there are lots of sources of information on this subject.

In addition to its role as regulator‚ the Financial Services Authority (FSA) produces a wide range of material to help consumers make informed choices about financial products and services.

Many newspapers and magazines contain regular personal finance sections with articles on savings‚ investments‚ loans and insurance‚ as well as details of current interest rates. There are also specialist finance and investment magazines‚ which may be available at your local public library.

There is a lot of financial information available on the internet. The sources we have mentioned above have websites and there are many more‚ often run by individual companies or trade associations. However‚ although their information may be accurate‚ these companies and associations ultimately want to interest you in buying their products. Make sure that any websites you look at are accurate and have been updated.

If you decide to buy over the internet remember it is unregulated so you should exercise caution. You can find good deals but should always check with the FSA whether a firm is authorised in the UK‚ where it is based‚ where it is regulated and what cover you will have if anything goes wrong.

What next?Check the useful organisations section at the end of this guide.

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The role of the Financial Services Authority

The Financial Services Authority (FSA) is the independent regulator for financial services set up by the government to protect the rights of users of these services. Firms that offer advice about most financial products have to be authorised by the FSA.

Products for which authorisation is required include most types of insurance‚ most mortgages and most financial investments (eg shares and investment trusts‚ Individual Savings Accounts and personal pensions). A full list‚ including exceptions‚ can be obtained from the FSA. Some firms offer advice on all three types of product (insurance‚ mortgages and investments)‚ others on only one or two. Firms authorised to provide financial advice have to meet minimum standards set by the FSA and follow FSA rules. These standards and rules vary according to the type of product you are taking advice on and the level of advice being given. The FSA produces a guide to financial advice which  explains what you can expect when you contact an adviser for a particular purpose.

What next?For information on finding an adviser or to check whether a firm offering financial advice is authorised‚ contact the FSA Consumer Helpline.

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Choosing a financial adviser

The adviser you choose should both be authorised to provide advice on the type of product you require and have regular recent experience of doing so. Consider what you want from your discussions: a particular product or advice on your wider financial situation ?

If considering an adviser‚ ask how independent they are and what links they have to providers of financial products. If you are speaking to an adviser at your bank or building society‚ or one employed by an insurance company‚ that link will be fairly clear.

Other advisers include independent financial advisers‚ mortgage brokers‚ stockbrokers and insurance brokers. Some will consider products for you from across the whole market‚ other from a limited number of providers and some will be tied to a restricted list of providers. The situation may differ for different products sold by one firm. Find out as this may affect how much choice you are offered.

Advisers offer different levels of service. Some advisers will recommend a particular product after assessing your needs; others will select several products based on what you have said but leave you to decide. Check that what your adviser offers is in line with your expectations. You should also receive a key facts document explaining the service you will receive.

What next?Always check that your adviser is authorised – if they are not‚ you are not protected. IFA Promotions can suggest local independent financial advisers.

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Paying for financial advice

There are different ways that you might be charged for financial advice. If you pay by fee you will pay for the advice whether or not you buy a product but if the firm receives a commission for any product you buy‚ the value should be passed on to you. ‘Independent’ advisers have to offer you the option of paying by fee.

If you pay by commission you do not pay anything up front‚ but if you buy a product the adviser will receive part of the cost of this‚ either in a lump sum or over the time for which you hold the investment. If the price of a product includes a commission‚ there may be less left to be invested for you‚ and commission rates may influence the adviser.

What next?Ask your adviser how you will be charged and what the typical cost is.

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Buying without advice

It is possible to buy financial products without receiving any advice but the firm selling the product should make it clear that no advice is being offered. You should only do this if you are confident you know about what you need and what is available. If the product turns out to be unsuitable‚ you will have less cause for complaint than if advice had been provided.

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Scams

If someone you have never heard of approaches you with a deal that sounds too good to be true‚ it probably is. Always be wary of giving your personal details and paying any money until you have thoroughly checked the offer out.

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Problems and complaints

If you have a complaint about a financial adviser‚ first contact the adviser. FSA-authorised firms have to have a complaints-handling process. You may have valid grounds for a complaint if the firm has caused problems for you through inefficiency‚ error‚ by failing to give you relevant information or by providing incorrect information. If a product you have bought falls in value or does not perform as well as you hoped‚ this is not in itself grounds for complaint unless the firm failed to explain the risks involved or offered a product that did not meet your requirements.

If you are not satisfied with the way the adviser deals with your complaint‚ you may be able to take it to the Financial Ombudsman Service (or another independent complaints body). If your adviser has gone out of business you may be able to take your complaint to the Financial Services Compensation Scheme (FCSC). The FCSC can pay compensation in some cases. It does not cover unauthorised firms.

What next?Contact the Financial Services Authority (FSA) for more details.

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Useful organisations

Age Concern
Find details of your nearest local Age Concern on our site‚ or call the Age Concern Information Line on (free call) 0800 00 99 66.

Financial Ombudsman Service
The independent service for settling disputes between businesses providing financial services and their customers.
Tel: 0845 080 1800 (lo-call rate)

Financial Services Authority (FSA)
Regulator of the financial services industry and provider of consumer information.
Tel: 0845 606 1234 (lo-call rate)

Financial Services Compensation Scheme (FSCS)
The FSCS is an independent last-resort body that may be able to pay compensation if a firm is unable‚ or likely to be unable‚ to pay claims against it.
Tel: 020 7892 7300

HM Revenue and Customs (HMRC)
For information about taxes‚ including Income Tax and Inheritance Tax. Income Tax: contact nearest HMRC enquiry centre‚ details should be in phone book
Inheritance Tax helpline: 0845 302 0900 (lo-call rate)
National Insurance contributions office: 0845 302 1479 (lo-call rate)

IFA Promotions
Can provide contact details for four advisers or brokers in your area.
Tel: 0800 085 3250 (free call)
http://www.unbiased.co.uk/ (investments and insurance)
http://www.impartial.co.uk/ (mortgages)

National Debtline
Offers advice on debt problems and free booklets and factsheets on dealing with debt.
Tel: 0800 808 4000 (free call)

Pensions Advisory Service
Information and support on problems with occupational and private pensions.
Tel: 0845 601 2923 (lo-call rate)

Pension Service
For details of state pensions‚ including forecasts and how to claim your pension.
Tel: 0845 606 0265 (lo-call rate)

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What should I do now?

If you would like more information on the issues in this guide please call the Age Concern Information Line free on 0800 00 99 66.

You can order free paper copies of all our information guides through our online Information Guide order form.  

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Related books

We also publish books covering many of the above issues in our online bookshop. The following books may be of particular interest:

  • Your Rights to Money Benefits - Simple ways to boost your finances using clear‚ jargon-free language
  • Choices in retirement - the fourth edition includes new sections on getting the most out of the NHS‚ reducing household bills‚ adjusting to being at home‚ and grandparenting.
  • Pay Less Tax - This book will tell you everything you need to know about tax.

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