Reaching retirement with a Final Salary pension can provide you with stability and security. But as retirement lifestyles change, you may also want a flexible income you can draw on to match your goals.
A Final Salary pension, also known as a Defined Benefit pension, provides you with a regular income from retirement age for the rest of your life. The income is typically linked to inflation too, so your spending power will be maintained. The sum you receive will depend on the scheme, but it’s usually calculated based on how long you’ve been a member of the scheme and either your career average salary or final salary.
The pension scheme takes responsibility for ensuring commitments are met. This means you don’t have to worry about investment returns. As a result, a Final Salary pension can create financial security in retirement, and you don’t need to worry about whether you’ll have enough to cover outgoings or running out during your later years.
However, a Final Salary pension can be inflexible. Retirement lifestyles have changed a lot over the years, and you may want greater flexibility. Luckily, you don’t always have to give up the security of a Final Salary pension to achieve this.
So, what are your options? Here are three we think are worth considering:
1. Taking a lump sum from your Final Salary pension
In some cases, it is possible to access part of your pension as a retirement commencement lump sum. Whether this is an option will depend on your Final Salary pension scheme.
You’ll usually give up a portion of your regular Final Salary income in order to receive this. So, you should check how much your monthly income will reduce by and that you can still afford to maintain your lifestyle on a day-to-day basis if this is an option you wish to proceed with.
It’s a step that can provide you with the capital to create a flexible income to suit your retirement goals, whether you hope to put it towards travelling or providing loved ones with financial support. You won’t be able to take a second lump sum from your Final Salary pension, so a careful financial plan should be put in place to help meet your goals.
If you’re unsure if this is possible, it’s worth checking your pension paperwork or contacting your provider. You don’t have to use this option, but you should ensure you understand all your options before making up your mind.
2. Withdrawing a flexible income from a Defined Contribution pension
Over your working life, you may have paid into several different pension schemes. If you hold a Defined Contribution pension, this can be used to create a flexible income.
Since 2015, Defined Contribution pensions can be accessed in multiple ways. One of these is Flexi-Access Drawdown. With this option, your pension is invested but you’re able to make drawdowns flexibly. As you take complete responsibility for a retirement income when using this method, you need to keep in mind a range of areas, such as longevity and investment performance.
However, using a Defined Contribution pension to supplement a Final Salary income can be an excellent way to create flexibility without giving up security.
3. Flexibly access other investments and savings
After a lifetime of diligently saving and investing for the future, it can be difficult to swap mindset and start using these to fund your lifestyle. But these pots you’ve been building up can be useful for achieving the retirement that you want, and it may even be the reason you’ve been saving.
Understanding where you should make flexible withdrawals from, taking into account allowances, interest rates and investment performance can be complex. However, it’s something that can be built into your financial plan. This can give you the confidence to make a withdrawal when you want to, for a home renovation project for example, without having to worry about the long-term impact. As you have a Final Salary income in place to pay for day-to-day expenses, you can have peace of mind, even as your savings and investments decrease in value.
What’s right for you?
These three options aren’t the only way you can create a flexible income in retirement. Assessing your financial situation and goals is essential for finding a solution that’s right for you.
If you have a Final Salary pension and would like to talk to a qualified financial planner about how to create a retirement income that’s right for you, please contact us. Our goal is to help you live your retirement dreams safe in the knowledge that you have the financial means to do so.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Recieve our latest...
We will use the information provided here to keep you updated by email on news and other activities. For further information on how we use your personal information, please see our Privacy Policies.
We guarantee your email address will remain confidential and will not be given to any third parties.“At Boolers, you know that things will be dealt with properly and professionally. A real safe pair of hands!”
“I have always found the quality of advice, technical knowledge and level of service is second to none. ”
“Thank you to all of you for such a wonderfully smooth transaction! Hope we can do it again some time.”
“Boolers provided excellent advice when we needed it most.”
“Boolers have provided myself, family and business with pension and investment advice for over 30 years and continue to provide a high quality professional service to us all on an ongoing basis.”
“Chris Ball has been our Financial Adviser for many years and, from the start, we have been impressed with his strategic sense, his deep knowledge and his skills in helping us build our own successful retirement. He understands our aims and how to achieve them and has taken great care of us throughout. ”