In the light of the UK’s high inflation, local independent financial adviser, Becky Hammonds of Willow Financial Solutions, shares a few of her tips to safeguarding your pension.
Inflation is at its highest level for 40 years and pensioners may well be amongst the hardest hit.
The State Pension is usually protected against inflation by the ‘triple lock’ which means pension income will increase by the higher of inflation – earnings growth or 2.5%. However, in 2021 the Government suspended this rule until the start of the 2023/24 tax year when it will be reinstated.
As a result, in April, the State Pension increased by 3.1 per cent to match the CPI measure of inflation instead of the higher RPI rate.
Pensioners in a Defined Benefits scheme may benefit from an automatic increase in line with inflation or by a fixed percentage.
If you have a personal pension you can choose to swap some or all of your pension for an annuity which provides a secure income for the rest of your life.
When choosing an annuity, you can select to increase your income by either a fixed percentage or by linking it to the RPI.
However, your pension pot needs to have enough saved to provide for this. Also, choosing one of these options means your starting income will usually be lower but better protected against inflation.
Generally, when pension savers reach retirement, they are offered the opportunity to convert their pension pot into an annuity. Their insurer will write to them with a quote but each individual has the right to reject this offer and search the market for a better annuity rate. This is called the open market option.
Annuity rates plummeted several years ago, but they have rallied recently and are a way of securing your retirement income for the rest of your life.
It is essential for people not to only shop around for the best rate but also, if applicable, to take advantage of the enhanced annuities that are offered to people with medical conditions which may shorten their lives.
Too few people take advantage of enhanced annuities which can mean a bigger income even with medical conditions as common as high blood pressure or diabetes. One in five people has an enhanced annuity but up to 60 per cent could qualify.
Take time out to discuss your situation and your needs with an independent financial adviser who can assess your portfolio and direct you on the best path to take.
For more information contact Becky Hammonds on 07969 269677 or email becky@willowfs.co.uk.
