Why financial advice at retirement stage is so important
Whether you are a UK resident or an expatriate, it can be beneficial to consult a financial adviser at different stages of your life, for example when:
- Saving for your retirement
- Investing to make the most of your capital
- Seeking to minimise your liability to inheritance tax or other taxes
- Purchasing property
- Looking to protect yourself and/or your family against the consequences of death, serious illness or other adverse events
However, if there is one occasion when it might be more important than ever that you seek professional advice, it would be when you are looking ahead to retirement and are considering accessing your pension savings. So, just why might it be so beneficial to give your adviser a call at this time?
The range of options
In the UK, once you reach age 55, you have complete freedom as to how you access your personal pensions, and this has been the case since 2015. It’s possible to withdraw all of the funds in one go and ‘blow it on a Lamborghini’, to quote a previous Pensions Minister in the UK Government. You can choose to withdraw some of your pension pot and leave the rest invested, you can take both lump sums and income from your pension plans and you can take a significant portion of the fund as tax-free cash. The traditional approach of converting your personal pension into an annuity that pays a fixed income for life is now chosen by just 10.3% of plan holders, according to Financial Conduct Authority data for the 2019/20 financial year.
Even if you reside overseas, you might still have a UK-registered pension, and if this is the case, you would still enjoy all of these freedoms.
Some non-UK residents, on the other hand, have pension arrangements such as Qualifying Recognised Overseas Pension Scheme (QROPS). However, many of the restrictions that previously applied to withdrawals from QROPS for expats have now been removed, and if you have this type of pension, then you should still expect to have considerable freedom as to how you access your retirement savings. Some expatriates decide to transfer their pensions to a QROPS when they cease to be resident in the UK.
The irreversible choices
Whether you’re making a financial decision or any other choice, it’s generally true that if your decision can’t be reversed, then it’s best to think extra carefully, and maybe to consult with others first.
Therefore, it’s recommended that you consult your financial adviser before you decide how you will access your retirement savings, as if you choose certain options, you can’t go back on them. For example:
- Buying an annuity is essentially an irreversible decision. As mentioned above, this is no longer a particularly popular option, but annuities still have their advantages, such as the security they provide. Essentially, they convert your pension pot into a guaranteed income for life, and this level of income continues to be paid regardless of how long you live for. With all of the other options, you still, to some extent, have to predict how long your retirement is likely to last. However, if you choose the wrong annuity, or you decide after a few months or years that you would rather not have had an annuity at all, then there’s not much you can do about it
- Even if you don’t buy an annuity, without professional advice or guidance, it could be all too tempting to withdraw too much from your pension pot in the early years of retirement. This would then leave you with too little to really enjoy the later part of your retirement
A layperson could be forgiven for thinking that all areas of financial services have a certain amount of impenetrable jargon and abbreviations. This might be especially true when it comes to accessing your retirement savings, with terms in regular use such as Flexi-Access Drawdown; Pension Commencement Lump Sum, or PCLS; and Uncrystallised Funds Pension Lump Sums, or UFPLS, also known as Uff-Pulls! A professional adviser can help guide you through this confusing landscape.
The changing landscape
Pensions legislation has changed a number of times in recent years, with the 2015 pension freedoms representing an especially significant change in recent years. Some commentators have suggested that frequent changes are often made for political reasons, but whatever might be the motives for these changes, you’re in safe hands with an adviser who understands the pensions market and who is required to carry out continuous professional development to stay on top of the changes in the legislation and regulation.
The benefits of shopping around
When it’s time to retire, you don’t need to continue to use the same provider as the one with which you’ve held your personal pension. So, if you’re purchasing an annuity or entering a drawdown arrangement, for example, you can shop around and find the best provider. The question of course is, exactly which is the best provider? You might think you can get some indication of this from a price comparison site, but the best way is to speak to an independent financial adviser who has access to and knowledge of the entire marketplace.
The need for continuous advice and engagement
In the past, you would typically stop saving into your pension when you retired. Then, you would use the value of your pension plan to purchase an annuity, which provided a fixed income for life. There would then be nothing you could do to change anything, so you might as well forget about the situation and get on with enjoying retirement as best you can with whatever level of income – large or small – your annuity provided.
However, newer methods of accessing retirement savings such as drawdown and UFPLS might require you to make decisions on a continuous basis as to how much to withdraw, and in what form to take it. You can choose to withdraw amounts as lump sums and/or income, while leaving the rest of the fund invested. Then a few years, or even a few months later, you might be faced with the same decision once again.
Seek an adviser who specialises in expatriate advice
Advising UK residents isn’t quite the same as financial advice for UK citizens living abroad, so before you look to access a QROPS, international SIPP or other expat pension arrangement, get in touch with a professional in the field of financial advice for expats.