In my final column on pensions and retirement, I’m going to mop up any other matters I think I may have missed as you reach the lovely retirement date.
Firstly, do a full financial review. At the bar, I have lots of ‘can I just ask you a quick question’ moments. Our friend the psychologist gets less questions at the bar than me.
One question baffles me around debt and the cost of credit cards. My friend the psychologist can see I am about to refer them across to him when I see what the level of interest is.
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I’ve seen the temptation to believe that if you have cash in your account, you have flexibility and cashflow, yet the average credit card interest sits at pretty much four times the average mortgage rate.
Change your mind about mortgages and credit cards. You’ll pay as much interest on your credit card bill in January, February and March, as you would on a whole year of the same mortgage amount. Clear it.
Don’t withdraw from your pension if you don’t need it, only for it to sit in your bank account at near no interest, and way below inflation, but also both taxable and potentially adding to your inheritance tax bill. Drawing what you need, and when you need it is the better plan.
Check if you might have an old pension lying around. It’s an easy thing to do. It’s hardly the most exciting moment in your life, when, at an early age on a Friday night you have to talk to a pension adviser, and you know the pub is calling. So, it’s easy to make the decision, put the pension folder in the ‘dust collection cupboard’, invest for a few years then move, or leave an employer and that’s it, the pension disappears like Daniel Day Lewis.
There are reportedly over £20bn in lost pensions sat around in dusty cupboards. It sounds a lot when you try to spend it on a Friday night.
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Remember, prior to the digitalisation of financial assets, the only record in the house was a physical document. Today, an Independent Financial Adviser (IFA) will have everything in a digital file, with up-to-date assets and values, so it’s much harder to misplace.
Go to the pension tracking service at the government website and begin your search. I’ve no idea of how much of the £20bn might be yours, but it would be a nice start to retirement, like a finding an extra £20 in an old jacket on a Friday!
You can also use the service by Gretel which goes a stage further by looking for other investments, bank accounts and life insurance. There is reportedly over £50bn there which could give you a Saturday night out too.
If you have any gaps in your National Insurance record to maximise the state pension, go plug them. It’s invaluable. The total contributions needed are 35 years. You can check at the government website by searching ‘check state pension’.
Decide if you want to take your state pension or not, and if you do, claim it. You’ll get a letter around two months before retirement asking what you want to do. Don’t assume it will automatically happen, you have to claim it. Bear that in mind if you know someone who is potentially vulnerable in your family, and prompt them to claim it if they want it.
You won’t pay National Insurance after retirement date, even if you still work – nice bonus. Deferring your state pension may be an idea if you need to keep your taxable income down – ie you work a little longer, have that taxable income and then don’t want to add to it.
In simple terms, deferring for one year would see you have a 5.8% uplift the next year if you took your pension. So, if the state pension age is 66 and you defer your £10,600 for one year, you would receive £11,215 the next year ie £615 more. With a life expectancy of 83.9 that’s 16.9 years (83.9-67) of the higher amount, which is £10,393. If you are female its £12,730. I’ll leave the gambling down to you to decide if it’s worth it!
I’ve a feeling the notorious marshmallow experiment comes into play here.