Traditionally pensioners stopped paying National Insurance once they hit state pension age, however now this has changed as National Insurance contributions are rising for those still in work. With the pensions triple lock being scrapped, and inflation predicted to peak at four to five percent before the end of the year, it’s important for pensioners to plan for these changes.
Working pensioners now have an additional expense to part with each month after receiving their income which could be damaging if they are struggling to survive on their state pension income each month.
Speaking exclusively with Express.co.uk, Romi Savova, CEO of PensionBee gave guidance to those approaching retirement specifically those that may choose to work past state pension age and how to ensure they have enough income to live the lives they wish to in retirement.
She mentioned the importance of setting the right investment strategy.
Ms Savova said: “The best pension investments are usually diversified, meaning they are invested in a mixture of assets such as shares, property, bonds and cash – spread across global markets, from North America to Asia – to protect against the risk of any single type of asset or location. In the longer term, savers with diversified pensions tend to achieve bigger pensions that last longer.
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“Savers should avoid the temptation of moving their pension to a very low risk investment strategy in the event of market volatility as there is a good chance they will miss out on the eventual market recovery.”
People may decide to consider low risk plans as an option if they are withdrawing their entire pension imminently.
Whatever risk plans and strategies people may choose to undertake, the most important thing Ms Savova mentioned was that each person continue to make contributions right up until the moment they choose to retire.
Additionally, Ms Savova discussed the benefits of “Minimising withdrawals and thinking in percent”.
She said: “When the time comes to withdraw your pension, savers should consider only taking out what they need to ensure they don’t run out in later life.
“The exact moment a saver accesses their pension can have a big impact on their ultimate retirement income.
“It may be more beneficial for savers to think about their pension withdrawals in percentage terms, rather than pounds and pence.
“A good rule of thumb around how much annual income a pension can provide is c. four percent of the total amount.”
When it comes to drawdown, PensionBee’s research shows that the less a pensioner withdraws the better it could be for them in the long-term, because their money has more of an opportunity to grow.
Therefore, savers should consider whether they want to withdraw the full 25 percent tax-free cash or whether it is better to make smaller tax-free withdrawals on demand.
For some savers buying an annuity with part of their pension and guaranteeing at least some of their income will give them the desired peace of mind.
However, annuity rates are still considered low by historical standards due to the low interest rates currently being seen. It’s important to remember that a reduced pension balance will also result in reduced annuity income, so buying an annuity during periods of volatility could result in a lower than desirable – and irreversible – annual income.
If a saver is considering an annuity, but hasn’t yet bought one, it might be worth waiting a little longer as rising inflation could soon be complemented by higher interest rates and annuity rates, the expert suggested.
Ms Savova explained that savers should also consider the pros and cons of delaying taking the state pension.
She said: “Savers who wish to claim their state pensionPension as soon as they are eligible will obviously benefit from access to additional cash to spend during their retirement, and once they stop working, they’ll be exempt from the National Insurance hike.
“For those savers receiving the full state pension amount of £179.60 a week, this may provide a much-needed financial boost depending on individual circumstances.
“However, if a saver intends to keep working, it could be to their financial benefit to defer receipt of the state pension.
“Delaying the state pension by just a few weeks could result in a higher weekly state pension amount, or even a lump sum payment when they eventually decide to retire.”