Pensions may not be the only answer
Increasingly, people will need to look beyond their pension for income in retirement. In fact, it can sometimes make sense not to draw an income from pensions at all.
Here are three reasons why:
- Pensions receive favourable treatment on death
This is particularly true on death before 75, but the position on death after 75 can be more generous too in the right circumstances.
- Income is payable tax-free from some investments
For example, income from ISAs or a lifetime mortgage can be paid without tax. This means less income has to be withdrawn compared with a pension.
- Other assets can help mitigate sequencing risk
Sequencing risk can be devastating. Using assets that aren’t impacted by poor market returns can protect pensions savings.
Of course, the liquidity of different assets also has an impact on how easily they can be used. Some assets can be accessed swiftly like cash, but others, like property, can be much less accessible.
Structuring income for retirement these days often means including total assets and evaluating their characteristics. For example, considering each asset’s tax treatment of income, tax position on death, risk characteristics, susceptibility to sequencing risk and ease of liquidity.
Decisions about which assets to use and when need to be reviewed throughout retirement and adjustments made as circumstances change.