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Is Your Pension Plan Working For You?

Mortgage Free Home After Retirement

Planning for your retirement should be an active process, rather than placing money into a pot and ignoring it until you’re 65. During your 45 years or so in the world of work, your lifestyle and the economy in general can vary a great deal, so it is important that you take the time to review your pension and make sure you’re investing in the right plan to suit your circumstances.

Every couple of years, especially as you near the age of retirement, you should ask your pension provider(s) to issue a statement informing you of the income you can expect once you retire. If you have invested in high risk shares as opposed to fixed interest bonds, you should keep a close eye on the stock market to ensure your investment is performing well.

People who have invested in higher risk shares should seriously consider switching to a more stable pension option in the five years before they plan to retire. A serious fall in the stock market could prove disastrous to your lifestyle as a retiree, so moving it lessens the risk.

Looking To The Future

Once you have a projection from your provider regarding the level of income you are expected to gain from your pension, you should consider whether it is enough to live the lifestyle you desire. If you are disappointed by the figure, now is the time to start putting more cash aside, so consider upping your monthly contributions.

Working longer and deferring retirement is also an option if you’re looking for ways to increase your income; however this is not guaranteed as both the market and annuity rates can change. You could also choose to top up your income by continuing to work part time while drawing your pension – and as a bonus you will see your tax-free personal allowance increase when you reach the age of 65.

Annuities

As you reach retirement you can choose to take out 25 percent of your pension as a tax free lump sum. With the rest of the fund you will usually buy an annuity – this is the income you will have access to for the rest of your life.

You do not have to take the annuity offered by your pensions provider, so take the time to shop around and find the most competitive option. Note that your annuity will be with you for the rest of your life as switching is not permitted after you make a decision, so seriously consider your options before choosing a product.

If you are not convinced your pension plan is working, you might choose to sell your pension and move your money into another investment such as an ISA. According to the office of National Statistics, in the 2009/10 tax year saving in ISAs became more popular than pensions for the first time ever.

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