MERIDIAN FINANCIAL SERVICES IFA LTD
Your Retirement Age may be
W
e have recently seen a surge of investors asking questions about when they can retire and understandably so. From 6th April 2010 the minimum retirement age is increasing from 50 to 55 - a change, which will have an impact on an estimated 3 million people. In these tough economic times, investors are looking to keep as many of their options open as possible. Those with concerns about possible redundancy or who are simply seeking alternative income sources (due to the rapidly decreasing interest rates available) may have decided to turn to their pension savings but this change in legislation could scupper those plans. Before going any further it is very important to consider why this change has come about. We all live a lot longer and this means that our retirement will cost a lot more. By the age of 50, many of us will have worked for 30 years but at that point we can expect to live for at least another 30 years. Our time in retirement has increased by far more than 5 years and many of us started working later than previous generations. How are we going to pay for this longer retirement? For many people retiring at 50 is just not realistic. However, if your heart is set on it and you believe you can afford it, you do have some options. Those between 50 and 55 can choose to buy an annuity before the end of this tax year in order to circumvent the increase in retirement
age. But if you aren’t ready to swap your pension fund for a guaranteed income just yet, there is an alternative. An income drawdown plan allows an investor to take an income from all or part of their pension fund whilst leaving the funds invested. On top of this you can take up to 25% of the money you move into income drawdown as a tax free lump sum. The income can be increased or decreased, within set limits, to suit your requirements. It allows you to retain the right to draw an income from your pension before your 55th birthday without having to commit to an annuity just yet. If you need the tax-free cash for a specific purpose before your 55th birthday, for instance to pay university fees, pay off a mortgage or invest in a business, taking action now to pre-empt the increasing minimum retirement age could be the solution. But it is vital that you consider the impact this will have on your income later in retirement when the possibility of earning is no longer an option. It is important to remember that income drawdown is a much riskier option than an annuity as it doesn’t offer a guaranteed income and what you receive is entirely dependent on investment performance, which may rule it out for many. Your investments may increase or decrease in value and taking large income payments, especially from a young age, may deplete your fund. However, you can continue to make contributions to your pension funds whilst taking an income from drawdown.
If you would like a free initial meeting to discuss any of your current or future financial needs please contact us on
Tel: 01274 620702 Fax: 01274 620722 Email: meridianfserv@btconnect.com
Meridian Financial Services IFA Ltd, Registered in England No 5395299. Registered Office: 20 Bradford Road, Idle, Bradford, BD10 9PE. Meridian Financial Services IFA Limited is authorised and regulated by the Financial Services Authority. Reference number 430873
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