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30 Oct

5 Retirement Planning Myths Debunked

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Retirement planning is too important to be under the wrong impression. So we look to fix that in this blog post.

 

Planning for retirement is one of the most important periods of our lives, yet there are still many out there who don’t fully understand their retirement planning situation and are under false impressions as to how best to plan ahead. That’s why we wanted to debunk five of the most common retirement planning myths.

 

Myth 1 – You aren’t able to access your retirement money until 65

This one is simply not true, yet so many people are still under the impression that because the state retirement age is 65 that they cannot access their private pension until the same age.

Savers can actually access their pension pot at age 55, the current “Private Pension Age”. 25% of the pot can be taken as a lump sum tax free and the rest of the lump sum will be charged at income tax rates, which would be 20% for most people. This will be the case from April 2015 when George Osborne’s pension reforms come about and is slightly different to the current scenario which sees the part of the lump sum which isn’t tax free taxed at a massive 55%.

For that reason, current savers generally use the rest of their pension pot to buy an annuity product rather than face the heavy tax. That won’t be strictly necessary from April 2015, but in either case pension pots have been accessible from the age of 55.

 

Myth 2 – That pensions are lost if you change jobs

There are some workers who put off joining a corporate pension scheme when they start a new job if they expect to only be there for a few years. Nobody should have to miss out on a company pension scheme, though, just because they might be leaving. When you leave a company, that pension is not lost and is available at age 55 or retirement.

The Pensions Minister Steve Webb has even backed “Pension Passport” reform which could make keeping track of past pensions even easier for workers. His backing means that this idea could become reality at some point in the near future.

One thing workers should keep in mind, however, is that the charges associated with corporate pensions can go up when not actively contributing and for this reason it could be worth looking into transferring it.

 

Myth 3 – That pensions are lost if you die before retirement

Some people are reluctant to get a pension fearing that if they were to die before retirement they would miss out on that extra income and that it would be lost.

The money wouldn’t actually be lost, however, as it would be paid to your estate or spouse. Given that the “Death Tax” is also about to be scrapped, removing the 55% tax charged on passing on pension pots upon death, there is even more incentive to save now that death sees even less of your pension pot go out of the family.

 

Myth 4 – That retirement has to come overnight

There are plenty of people nearing retirement who talk and talk and talk about a “Retirement Date”. For some, retiring overnight seems like a great option and for some it will be. It isn’t necessarily for everyone, however, which makes it worth looking into the possibility of reducing hours rather than completely retiring.

It’s a bit of a misconception that HR departments won’t want to keep somebody on part-time, but smarter HR departments are now recognising the value that keeping experienced older workers around - even on a part-time basis - can have for the whole workforce.

 

Myth 5 – That the government provides free retirement planning advice

Those keeping up to date with the pension reform announcement might have noticed something called the “Retirement Guidance Guarantee.” This had led some to think that the government will provide free retirement advice. But this is false.

The free guidance is a welcome move, but it is completely different from proper regulated retirement advice like that provided by DAM and other financial advisers. The guidance will be provided by the Citizens Advice Bureau and in many cases they will even give guidance which recommends savers seek regulated retirement planning advice.

So the guidance is not a substitute for regulated advice, as the Financial Conduct Authority pointed out, saying: “Guidance does not replace financial advice given by regulated advisers.”

For more information on how to receive regulated advice you can pay a visit to our retirement advice page.

Photo credit goes to theilr

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