We are all living longer and so it’s becoming more important than ever to make your retirement income go further. Here are some tips how to boost your income.
Minimise your tax bill
How you draw benefits from a pension can affect the amount of tax you pay, so it’s important to consider how you make any withdrawals.
Normally you are allowed to draw up to 25% of your entire pension fund as a tax-free lump sum. You can then decide if you want to keep the remaining pension fund invested, convert the balance for a secure taxable income or you can decide to take out all the money from your pension fund in one go, however it is likely that you will be charged a significant amount of tax if you take your money all in one go so it’s unlikely to be the best course of action for you.
Remember that you pay Income Tax on all your income including your State Pension.
Also check that you are taking advantage of all personal tax allowances.
Consider deferring your State Pension
The maximum State Pension you can receive under current rules is £159.55 per week. It is possible to defer your State Pension in exchange for a higher income when you decide to claim it later in retirement.
When you choose to defer your State pension, it will rise by 1% for every nine weeks that you defer taking your State Pension, which works out at just under 5.8% for every full year you delay claiming it.
Deferring the State pension might help you mitigate some of the tax you pay in retirement.
You should always seek financial advice before looking to defer your State Pension as deferring could affect other welfare benefits.
Top up your pension
For many years there has been speculation over whether the government will cut pension tax reliefs and allowances in a bid to reduce public spending. It is worth thinking about boosting your pension savings now with as much as you can afford, for most the current annual allowance is £40,000. There is a general feeling that the amount of tax relief still available is fairly generous.
If you’re a basic rate taxpayer, you can receive tax relief at 20% on your pension contributions up to £40,000 or 100% of your earnings whichever is greater, the tax relief will automatically be added to your pension fund.
If you are a higher or additional rate taxpayer, you can claim an extra 20% or 25% through your self-assessment tax return. It means that a pension contribution of £1,000 can cost a top-rate tax payer as little as £550.
See if you qualify for a higher annuity income
If you have suffered health problems, or your lifestyle puts you at risk of a reduced life expectancy, then you could qualify for an ‘impaired life annuity’ or ‘enhanced annuity’, which can offer you more income than a standard annuity, as the insurance company takes into account your potential reduced life expectancy.
An enhanced annuity pays you a guaranteed income during retirement which is guaranteed for the rest of your life.
Combine your pension pots
Most of us have accumulated a number of different pension plans over the years as our employment circumstances have changed. If you have a number of pension funds with different providers, it might be worth considering combining them into one plan. Today’s pension plans offer the most flexibility and with advances of technology mean quite often costs on new plans are much lower than on older plans you may hold.
Based in Stockport, Cheshire, Cullen Wealth is one of the top 20 independently owned IFA Companies in the UK. To talk about how you can boost your retirement income, please contact your normal Cullen Wealth consultant or call 0161 975 6700.