Multiple sources of retirement income

Stephen posted on October 5, 2011 07:28

Do you really want multiple sources of income when you retire? Anyone who has started to receive a company – or any other – pension will know that the first thing they are likely to get is a letter from the Inland Revenue (HM Revenue and Customs as we have to call them now) asking about other sources of income.

For those who simply have a second income from a job not yet given up, or a state pension – and perhaps a few investments – this need not be too much of an issue. But if you have built up several pensions over the years but not brought them together, things can become quite complicated.

After all, which is to be treated as your main source of income, against which your personal allowance should be set?

Consolidation near retirement
It is, of course, possible to consolidate all your pension arrangements in the run-up to retirement. This can be time consuming and there are usually costs associated with doing so, so the result can be a slight reduction in your tax free cash and eventual pension. However, the costs of not consolidating could be higher, not least because each pension arrangement will carry fixed charges which will become duplicated if you have multiple annuity (or drawdown) arrangements.

Pension consolidation now
One alternative is to consolidate your pension arrangements well in advance of retirement. By doing so, you will not necessarily avoid any costs associated with switching existing pension plans into a new one, but these will be immediate, rather than at point of retirement, and you still have plenty of time for investment growth to make good any temporary ‘losses’.

More importantly, however, you could well find that the charges associated with more modern arrangements – especially self invested personal pensions for those with larger funds – can be much lower than those applying to older plans. This means that ongoing charges can take a smaller proportion of your retirement fund – every year.

Managing your pension
Managing asset allocation strategies over a range of pension plans can also be difficult and there is scope easily to miss important sectors, or overload the portfolio in a particular investment area that you might not chose to do, if you had more coherent control over the asset spread.

By consolidating your pension plans into a single arrangement you can not only reduce costs, but also make overall management easier – as well as facilitating changes in a more structured way. You can also consider taking advantage of some of the additional benefits of using a self invested personal pension, such as investing in less common assets and even commercial property.

This can be particularly valuable for those running their own businesses, as it is a way of gaining control over the operational base – and of paying rent to your own pension scheme in addition to ordinary pension contributions, which are now limited to a maximum of £50,000 a year.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.

NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.

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