Finance gurus are offering a sage heads-up to Brits, particularly those in their 50s, as they debunk a pension myth that could cost them dearly – it’s a blunder dubbed the “biggest mistake” with retirement funds.
To help secure a more comfortable retirement, those hitting the milestone birthday are being advised to take three crucial steps.
Right off the bat, anyone in the UK turning 50 – currently those born in 1974 – is entitled to a free Pension Wise appointment.
This government-backed scheme is all about giving you the lowdown on your retirement options, ensuring you make savvy choices as you edge closer to waving work goodbye.
The Sun’s finance experts have flagged the major faux pas many get steered away from at these essential Pension Wise sessions; taking out your pension stash too hastily.
Doing so cranks up your tax bill, slashes what you could earn from your investments, and might even land your heirs with a hefty inheritance tax tab – all financial curveballs worthy of a chat with a finance expert.
And here’s a timely word to the wise; fewer folks have sought financial advice pre-pension plundering in the last half-decade. Stephen Lowe, the Group Communications Director at Just Group, chimed in about the complexity of retirement decisions, telling the publication, “Retirement decisions are some of the trickiest financial decisions that people will ever face.”
The financial gurus are warning retirees who opt for income drawdown to double-check the fees their provider charges and consider shopping around, particularly when eyeing up annuities. They cautioned that a poor choice in annuity could “easily lose pension savers thousands of pounds”.
Stephen advised: “The gap between the best and worst deals has been rising through this year. That is true for all ages we track but is currently particularly high at 20% for buyers aged 75. There are no second chances when you buy an annuity – you must get it right first time.”
Additionally, many people don’t realise that state pension payments do not kick in automatically upon reaching retirement age, as some choose to defer their state pension for larger payouts later or because they continue working past 66.
Sir Steve Webb, Partner at LCP, emphasised that while the choice to delay one’s state pension depends on personal circumstances, aims, and needs, he recommends those still employed to postpone it mainly for tax reasons.
Tacking your state pension onto your regular income could indeed bump some into higher tax brackets, resulting in taking home less than if they had deferred their state pension payouts.
The expert has advised two specific groups to think twice before deferring their state pension payments: those who “don’t expect to live long” and individuals receiving benefits. He pointed out that the former may not benefit from an enhanced state pension if they postpone, while the latter could see their benefits cut due to their decision.
