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What does the coronavirus mean for your retirement plans?

If you’re approaching retirement, we explain why you might want to consider delaying your retirement plans.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

If you’re approaching retirement, your retirement plans might have become unsettled because of the coronavirus pandemic. The value of your pension might have dropped, and you’re probably wondering if now could be the right time to stop working.

Some people who had no plans to retire might even be considering dipping into their pension to cover short term expenses. But if you can afford to, we believe you should try and avoid this. Just because you might be able to take money from your pension, doesn’t mean it should be the first option.

This article isn’t personal advice. If you’re at all unsure please seek guidance or take advice. You can’t normally access your pension until age 55 (rising to 57 in 2028).

Consider delaying your retirement plans

Deciding whether or not to delay your retirement isn’t an easy choice or one that should be taken lightly. It’s important you work out whether you can afford to or not.

If you have enough savings to support yourself, or your job hasn’t been affected you might want to consider delaying your retirement plans – and here’s why.

Recent stock market activity could have impacted the value of your pension, so now might not be the best time to access your money if you can afford not to. For example, if you’re looking to take your 25% tax-free cash entitlement, you could be choosing to sell at depressed prices to make that cash available. This in turn could mean you’re sacrificing a potentially higher tax-free cash amount.

By holding off your retirement plans until the dust has settled the markets might have time to recover giving you the chance to make the most of your pension benefits. That being said, there are no guarantees that the value of your pension won’t fall further. All investments fall as well as rise in value, so you could get back less than you invest.

Our pension calculator is a useful tool to help determine how much you could get when you retire, how much you should consider saving to achieve your target and evaluate whether to delay taking your pension. Remember too that the figures provided are not guaranteed and should be used as a guide.


Could you use your rainy day stash instead of your pension?

We’ve always been told to put some money aside for a rainy day and to make sure we’ve got a cash buffer in case of emergencies. For some people, the rainy day has arrived.

Before you look to your pension for extra support in the short-term we think it makes sense to use some cash savings first. When you take an income from your pension this amount will normally be taxable, so by taking money from any cash savings first, you can avoid paying tax unnecessarily. Remember that tax rules change and benefits depend on individual circumstances.

If you take a taxable income from a money purchase pension, such as the HL SIPP, you’ll also normally trigger what’s known as the money purchase annual allowance. This means the amount that can be paid in to money purchase pensions will be limited to £4,000 per tax year. This limit includes contributions made by both you, your employer and tax relief from the government.

This might not seem like a problem now, but it could affect you in the future if you wanted to rebuild your pension. With a reduced allowance you could struggle to build up a sizeable pension pot again.

If you only take your tax-free cash, and no taxable income, then you won’t trigger this £4,000 limit.


What if I need to take an income from my pension?

If you do need to take an income from your pension, it’s important you understand how your withdrawals might be taxed.

Our factsheet explains how tax could be deducted from your pension payment, what different tax codes mean and how to claim back tax if you overpay it.


Get guidance from Pension Wise

Before accessing your pension you should consider all of your options carefully.

From age 50, everyone with a money purchase pension has the right to a guidance session with Pension Wise. They offer a free and impartial government service about the different ways you can take money from your personal or workplace pension. They also cover how each option is taxed and will give you information on the next steps. Even if you’ve got a retirement plan worked out, it might be useful to get a second opinion.

Broadly speaking you’ll have three main retirement options to choose from. These are drawdown, lump sum payments and buying an annuity. And there are different benefits and risks to each option.


Is now the right time to take financial advice?

It’s important to consider taking personal advice when it matters. Not only is retirement a time when advice could be worth paying for, but recent uncertainty might have caused your confidence to dip.

Our financial advisers could help you retire on your own terms and gain back control over your retirement plans. To find out whether or not you’ll benefit from advice, our advisory helpdesk are the first port of call. They might discover you don’t need advice, and if that’s the case we’ll support you with free information to help you get back on track. If you do proceed with advice, advice charges will apply which will be discussed with you.


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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