Jasmine Birtles is a financial journalist, author and presenter, and the founder of money tips website, moneymagpie.com
Claim your pension or keep building your pot? Save or invest? There are lots of money decisions to make at any stage of life,and that remains true in retirement. To help you weigh up your options, we’ve asked finance expert Jasmine Birtles for her take on some common questions.
However you don’t have to take your pension at that age. If you put it off by a few weeks it’s possible you could get extra money - the amount you could get depends on when you reach State Pension Age, but it’s definitely worth a look!
With personal or workplace pensions the rules depend on your scheme but it’s possible you could be able to start drawing the money from 551. Again, you don’t have to, and it can make much more sense to put it off and give your pot longer to grow.
These are big decisions, and pensions can be complicated. I often find it’s helpful to chat through with financially savvy friends or family, to explore things from all angles. Of course, an expert view can be very beneficial too – VouchedFor.co.uk is handy for researching advisers. You’ll also find lots of impartial pensions information at Scotland’s Financial Health Service.
One thing that’s important for everyone is to keep track of pension pots. If you moved jobs a few times in your career you may have a few, and could have forgotten one. Happily, you can get hold of these precious sources of cash with help from the Pensions Tracing Service, or the Pensions Advisory Service.
It’s worth a hunt. According to research2 by the Association of British Insurers there are an estimated 1.6 million lost pension pots in the UK right now, worth nearly £20bn. That’s an average of £13,000 per lost pension. If some of that money could be yours, go get it!
You certainly can and I personally think it’s a good idea – especially if you’ve talked it through with your family and it supports the lifestyle you want. For a start, you have more money to play with each month and if you’re past retirement age you usually don’t have to pay National Insurance so you keep more of your pay.
However, this extra money is taxable and will be added to your pension income. Anything you earn over £12,500 per year (from April 20193) will be taxed at 20%. Depending on the size of your pension, the extra earnings could tip you into higher rate tax, which would mean you would be paying 40% tax on anything over £50,000 per annum.
When it comes to workplace pensions, keep in mind that reducing your working hours could have an impact – you should check with your scheme, and consider professional advice if uncertain.
The best way is to diversify your portfolio. So you could consider (for example) putting some in pension products, stock market funds (ideally wrapped in an ISA to reduce tax payments), property (maybe just your own home), savings (or ‘Cash’ as the investors call it) and so on. The value of this is that different asset classes tend to go up and down at different times, so if one of your investments is down you could still get income from the ones that are up.
Only you can decide on the right balance for you. It’s important to read up on risk versus reward, and consider your options, especially as you near retirement as your priorities may well be changing. You can learn more about investing on the Bank of Scotland website.
Also, be wary of unsolicited calls, emails or letters from anyone suggesting that you move your money to their apparently high-performing investment, particularly any that offer to help you ‘unlock’ your pension. For one thing, pension cold calls are now illegal in some circumstances, so you should be very wary of anyone who calls unexpectedly. Sadly there are a lot of very clever fraudsters around – but there are also steps you can take to avoid investment and pension scams.
There are times when outside forces pull down property values and you can’t always control that. But there are always things you can do to increase your home’s value in good times, and keep it as stable as possible in downtimes.
For a start, simply keeping it well-maintained is the best way to retain its value. Mend the roof, pipes and walls where needed, keep the garden tidy and deal with mould or leaks quickly. It could make a surprisingly big difference: a bark.com survey4 last year reported that an overgrown garden could devalue a property by as much as 20%. It also suggested that adding an off-road parking space could boost value by up to 10% – worth thinking about!
Increasingly, energy efficiency can also help properties to sell well, so upgrading your boiler and installing draft exclusion devices and cavity wall insulation could help. You can find advice on energy efficiency from Home Energy Scotland.
Be careful about adding things that could reduce the price of your home, too. A badly-built conservatory would obviously make a home less attractive to buyers, but actually even ‘luxuries’ like swimming pools are worth thinking carefully about, as buyers tend to be wary of the upkeep. Check with local estate agents first if you’re unsure.
With IHT, there’s normally none to pay if the value of your estate – your property, money and possessions – is under the current threshold: £325,000 per person. This can double to £650,000 for married couples, as long as the first person to pass away leaves their entire estate to their partner. Anything over those thresholds is taxed at 40%.
You can reduce the amount your inheritors pay by giving money and assets away while you’re alive. For a start, you can give away cash up to seven years before you die without the gifts being counted as part of your estate. So you could give it to your children or grandchildren to help them onto the property ladder, for example.
Also, there’s now an extra tax break on the family home. You can transfer an additional £150,000 of its value to your direct descendants and in 2020/21 that will rise to £175,000. This effectively means that, by 2021, you can have an IHT-free allowance of up to £500,000 and married couples or civil partners (who can inherit unused allowance from their spouse) could pass on up to £1 million before IHT applies.
Keep in mind that tax can be complicated. There are various rules thresholds and gifts and you should always check how they apply to you. It can be worth getting independent advice, particularly where large sums of money are involved. And talk things through with your family. Many people find inheritance a tricky subject, but you might find it helpful.
And don’t forget to make a will – you can find out how at Citizens Advice Scotland. Research shows that 54%5 of UK adults don’t have one, and this can cause problems for their loved ones. Keep it up to date too – your circumstances might change, but you’ll always want to ensure your estate will be handled exactly the way you want.