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Pension – Don’t Rely On Using The Sale Of Your Home To Fund Your Retirement
How to fund your retirement is one of the biggest financial decisions you will ever have to make and it should not be taken lightly. However the overload of information that occurs courtesy of the media can leave savers feeling more unsure than ever.
In this situation it is tempting to rely on a tried and tested way of paying for a retirement, the accrual of equity in a property, but this might not be the safest and most efficient way of funding your retirement.
There is always a risk involved when it comes to using a property to pay for retirement because savers have to make an educated guess on the robustness of the property market when they eventually come to sell in the future.
There may be opportunity for many people to profit if they act swiftly, sell up when property prices are high, and invest the equity.
The Bank of England’s Monetary Policy Committee may increase interest rates after the next general election and there is no guarantee that Help to Buy will continue in its present form; with some schemes facing difficulties already.
So what other options might there be?
Over the last year the pension market has experienced some fundamental changes and the options for savers and those who are due to benefit from their pensions have increased.
With the end of compulsory annuities on most pensions, savers have more flexibility to draw down a lump sum of their savings when they retire.
Paying off a mortgage or wiping out outstanding debt in one go might be a more cost effective solution for retirees than simply being tied to an annuity payment.
In September it was announced that pensions could become tax efficient savings funds, not just designed for paying an income later in life but also a way of passing on what is left to their family.
From April, depending on your age when you die, you could be able to leave your pension fund with no tax to pay (it was previously taxed at a staggering 55 percent).
You are not allowed to leave an annuity policy to family member in a will and, as a result of the announced changes annuities may become an even less attractive method of managing your pension income.
The changes will affect the 12 million people in the UK in defined contribution pension schemes and they will be able to pass their pensions on without having to worry about penalties on inheritance tax as long as they are over the age of 75 when they choose to do so.
With next year’s general election in mind, the government is looking to offer the voting public a reduction in the taxation burden on pensions and inheritance, and in doing so they will give future retirees many more options.
If you are unsure about the best way to provide for you and your loved ones in the future, seeking some professional advice to give you an informed opinion on your possible choices may be a good idea.
To find out more about the options available to you, speak with a financial advisor.