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 can receive favourable tax treatment on death
  This is particularly true where the member dies before age 75, although pensions can still receive favourable tax treatment after age 75 in some circumstances.
  
  
• Some assets can provide money without an immediate income tax charge
  For example, withdrawals from ISAs are generally tax-free, while money released through a lifetime mortgage is borrowing rather than taxable income. This may mean that a smaller gross amount needs to be withdrawn to provide the same net income.
  
  
• 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.
  
  
• New IHT rules will bring most unused pension funds and death benefits into estates
  From 6 April 2027, new rules will bring most unused pension funds and pension death benefits into a person’s estate for inheritance tax (IHT) purposes. This is a major consideration, and a summary can be found here.

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.