Should I delay retirement?

If your pension is smaller than you’d hoped it would be, you might be considering postponing your retirement. Deferring retirement could enable you to continue paying in to your pension and hopefully benefit from further stock market growth.

Here, we look at the financial impact of delaying retirement. A financial adviser can help you to decide on the best course of action, by considering your personal circumstances. WHAT DIFFERENCE COULD DELAYING MAKE? Delaying retirement by several years could bring significant financial advantages. For example, consider a 55-year old earning £50,000 gross per year, with a £400,000 self-invested personal pension (SIPP), who can choose between retiring next month and delaying for five years. Our analysis shows that if they are planning to retire at age 55 on half of their current income, or £25,000, they could risk running out of money at age 76. However, if they work until age 60 and reinvest growth within the SIPP, save their excess income and add a one-off £10,000 lump sum to the SIPP, their funds are likely to last until age 92. These calculations are based on pension growth of 5% per year after charges and inflation at 2%.

YOU HAVE MORE TIME TO SAVE By delaying retirement, you could continue to get tax relief on pension contributions at your marginal rate of income tax, until age 75. That’s if you are in a position to carry on saving.

Your pot and contributions will have the opportunity to grow over a longer period of time, potentially providing a greater income in retirement. And if you can add the occasional lump sum – for example, if you have paid off your mortgage and will not spend all your income – you could further boost your retirement savings.

YOU COULD GET MORE STATE PENSION The state pension age for both men and women is currently 66, but it is gradually increasing and will reach 67 by 2028. The full state pension is £179.60 per week. However, if you aren’t going to depend on your state pension for essential outgoings, you could defer payment.

You earn an additional 1% on your state pension for every nine weeks you postpone taking this, or around 5.8% more for every year you delay. However, you should check that receiving a greater amount in state pension will not impact on other benefits you may receive, such as pension credit. SHOULD YOU DELAY? THINGS TO CHECK: n Before deciding to delay retirement, check whether your pension scheme will impose any charges or restrictions for changing your retirement date.

Also, ensure you will not lose any valuable income guarantees, such as a guaranteed annuity rate (GAR), by delaying retirement.

n When you get closer to retirement, review where your pension is invested and ensure you are comfortable with the risk you are taking. You might want to gradually reduce your exposure to shares, for example, and move a greater portion into cash and bonds.

n Bear in mind that the current lifetime allowance (for tax year 2021/22) is £1,073,100. This is the amount you can accumulate in a pension over your lifetime, and breaching the limit could see you incur a hefty tax charge when you start withdrawing income.

In theory, the longer you delay, the higher your potential income. However, there are no guarantees of this, and it will depend on market conditions when you retire. Seeking advice from a financial adviser can ensure you are on track for a comfortable retirement and establish how best to boost your retirement fund to suit your personal circumstances.

❛❛ You might want to switch to working part-time, or flexibly, and keep your pension fully invested while drawing on other savings and investments ❜❜

You can obtain a state pension forecast to see how much you would receive as a starting point.

YOU COULD RETIRE GRADUALLY You might want to switch to working part-time, or flexibly, and keep your pension fully invested while drawing on other savings and investments.

Alternatively, you could opt for income drawdown. This enables you to keep your pension savings invested while you draw an income from your investments when needed. This way, you can make small withdrawals while continuing to work and earning an income, giving your investments the opportunity to grow and recover any lost value.

YOU MIGHT BENEFIT FROM WORKING LONGER The traditional life path of full-time employment followed by a long period in retirement may be long gone. People are living longer, healthier, active lives – and you might want to continue working in some form, past retirement age, for your general wellbeing.

A period of part-time work and phased retirement can reduce some of the pressure on pensions, which may only be needed to top up a lower income level, rather than immediately replacing earnings.

The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change.

Paul Cannons E: paul.cannons@brewin.co.uk www.brewin.co.uk

It’s Our Planet Too Case Study

What is the best way of teaching children the importance of conserving the environment?

Kate Cohen’s business, It’s Our Planet Too, certainly looks to be in the running for that title. Here’s a look at Kate’s story, and how she went from majoring in Environmental Science in university, to running a social enterprise dedicated to teaching children to love the environment.

The idea of It’s Our Planet Too was first conceived many years ago, long before Kate became a mother. Having studied environmental science at university, Kate had an idea for a website about the environment aimed at children. She then registered the domain name, doodled a logo and forgot about it, only to pick it up again a few years later, when her children were growing up.

Seeing how her children’s generation is taking notice of our impact on the environment, Kate felt it more important than ever to help them understand the urgency to conserve the planet. From here came her motivation to start It’s Our Planet Too, whose mission it is to inspire children to love and care for our environment.

Today, It’s Our Planet Too offers a range of branded children’s products, all of which are sustainably and ethically produced. The sale of these products go towards promoting their brand values and supporting selected wildlife charities in their work. Indeed, Kate tells us that It’s Our Planet Too is committed to giving back, contributing at least half of its profits to good causes. When asked about the greatest challenge faced when running her business, Kate points out that gaining traction in a crowded marketplace has been the most difficult part of running It’s Our Planet Too. This is especially since the business is reliant on organic growth through social media platforms.

If she were to do it all again, Kate tells us that she would go in with an appreciation that everything tends to take much longer than you think it will. To this end, she reminds us that it is important to be realistic with oneself on what is achievable on a daily, weekly and monthly basis – something that could be difficult for a perfectionist. As advice to new entrepreneurs, Kate underscores the importance of surrounding oneself with a group of like-minded people, especially if one is a ‘solopreneur’. Recalling her journey, she points out how she has become part of some inspirational communities of entrepreneurial women on the way.

Looking to the future, Kate ultimately aims for It’s Our Planet Too to become recognised as a brand that is synonymous with making a positive change for a greener future. At the same time, she emphasizes the importance of becoming a commercial success, so that the company can continue to make a meaningful difference to the charity they support.

After all, according to Kate, the most fulfilling part about running It’s Our Planet Too is the positive comments received from customers and followers, because they remind her that her products and messages are indeed working to inspire children to make a difference to the planet.

Social Media

Website: www.itsourplanettoo.co.uk Instagram: www.instagram.com/its_our_planet_too/ Facebooks: www.facebook.com/Itsourplanettoo