The 2014 Budget changed the entire landscape for retirement and saving. In this article, we look at how you can boost your retirement income – even if you’ve already bought an annuity or gone into drawdown.
People love to complain about pensions. That’s understandable as they’ve worked out badly for many pensioners.
We think the biggest gripe is the inflexibility of pensions. Once you’re locked into a pension, it can be very hard, or even impossible, to increase your income.
So in this article, we’re going to look at what you can do if you’re already taking money from a pension and you want to increase your income.
Let’s start with pensioners who are in income drawdown.
If you’re in capped drawdown, you may already be taking your maximum income. Your drawdown level is reviewed once a year if you’re 75 or over, the review happens once every three years if you’re younger.
Now that the limits for capped drawdown have been raised, you’ll almost certainly be able to withdraw a bigger income at your next review.
That said, do be careful. If you withdraw your maximum amount and then spend it all, you may feel the pinch when you’re older.
Obviously, if you’re in flexible drawdown, you can take out the whole lot. Just remember to think about the tax implications, and the need to preserve some capital in case you live longer than you might expect.
As we’ve said already, with most annuities, you’re locked into your annuity once you’ve signed up. So if you’re finding that you’re not getting enough income from your annuity, you need to consider other options.
Let’s start with your home. Assuming you own it and you’ve paid off the mortgage, you may be able to generate some income from your home.
For starters, you could sell your current home and move to somewhere less valuable. You could use the difference to generate some income.
Or you could go into equity release. This is where a company effectively lends money to you using your home as security. So when you die, the equity release provider will get first dibs on the proceeds when your home is sold.
Equity release has a pretty poor reputation and there’s no doubt that many people were ripped off in the past. Regulation has improved since then, so rip-offs are less likely these days. (But not impossible.)
Make sure that your equity release provider is recognised by the Equity Release Council. You should also make sure that you take advice from a solicitor or a good financial adviser before you take this step.
Another option is to rent out a spare room in your home – assuming you have one. You might be surprised how much you could get.
You should also check that you’re claiming all the benefits you’re entitled to. You can do that on the Money Advice Service website.
So that’s a round-up on how to boost your retirement income and the last in our ‘Pensions Survival Guide’. Look out for your regular Money Morning daily emails and weekly round-up email in you inbox.
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Here’s a summary of all the main budget changes to the pension system:
From April 2015:
• Anyone over 55 will be able to withdraw all the cash from their pension pot if they wish. (That’s assuming the reform plans aren’t amended during the current consultation process.)
• This change gives new retirees much more freedom. Be careful though, you could end up paying more tax than you need to. There’s also the temptation to spend all of your pension pot way too quickly.
Changes introduced on 27 March, 2014
• If you want to go into flexible drawdown, the amount of secure pension income you need has been reduced from £20,000 a year to £12,000 a year.
• The maximum amount you can withdraw under capped drawdown has been increased from 120% of an equivalent annuity to 150%.
• From the age of 60, if your total pension pot or pots are worth £30,000 or less, you can now take all your money out in go. Under the old rules, the maximum size for your pot or pots was £18,000.
• Regardless of your total pension wealth, you can now withdraw all the money from small pension pots worth up to £10,000. Under the old rules, the limit was £2,000.
• Under these small pot pension rules, the number of pension pots you can take as lump sums has increased from two to three.