HSBC is publishing tomorrow its latest Future of Retirement report, suggesting that more people are choosing to pass wealth on whilst still alive, what they call ‘giving while living’. From Tom McPhail, Head of Pensions Research, Hargreaves Lansdown.
The present generation of retirees has enjoyed a fairly generous system, including widespread final salary schemes and generous tax breaks. This is all changing; investors have more freedom but also greater responsibility to manage their retirement savings prudently. Increasing life expectancy and the looming risk of later life care costs mean that those retiring today should think very carefully about how and when they choose to draw on their retirement savings. For most people, it would make sense to pass on wealth in retirement only after taking sensible steps to secure financial security for the rest of your life. This could mean buying an annuity with at least part of your pension pot.
In research conducted (by Hargreaves Lansdown) since 6 April, we have also found nearly one third of investors (29.8 percent) have said they intend to hold money in a pension as a tax-efficient way to pass money on after their death. We also found that nearly 2/3rds (61.5 percent) only plan to draw on their pension when they come to stop working.”
Action points whilst working:
Use a pension calculator to project your retirement income
If it doesn’t look like enough then think about saving more or retiring later
Take advantage of any employer contributions available, it is free money.
Use the government tax breaks, especially if you are a higher rate tax payer; they may not be around much longer
Look at your total wealth, including your state pension, your ISAs, your house and your spouse’s savings
Don’t assume you’ll inherit money!
Action points at retirement:
Secure enough income to cover your essential expenditure.
Look at your state pension, any final salary schemes and decide if you need to buy an annuity too
If buying an annuity, make sure you shop around, including checking whether you can get an enhanced rate (75 percent do these days)
If using drawdown, make sure you understand all the risks
Don’t give money away unless you are sure you won’t need it
