What happens when I get near retirement?

What happens when I get near retirement?

It's always important to make sure you are on track to receive the income you'd like when you retire but as you near retirement you might consider making the following checks.

Five years before

You might consider taking a look at your investments and pensions around five years before you plan to retire.

  • You could check with you pension provider to see how your pensions are doing.
  • Check any investments to see how they have performed.
  • You might think about topping up any pensions or investments if you can.
  • You could speak to a financial adviser to see how to make the most of your finances.

Nearing retirement

When you near the normal retirement age you might start considering the points below.

State pension

The government will start paying you your state pension at your state retirement age and you should receive forms to fill out a few months before. You can find out what to do if you are not contacted on the Directgov website.

Individual and company pensions

Many people turn their pension into an annuity (a taxable income for life) but there are other options to think about.

Some options to consider

  • Taking early retirement - check with the scheme to see whether you can take early retirement and the impact this might have (the minimum age is 55).
  • Deferring your pension - you may want to wait before buying an annuity, but doing this does not necessarily mean you'll get a higher income.
  • Shopping around for the best annuity rate - you don't have to take your income from Prudential. You can shop around and depending on which type of annuity and options you choose, may be able to get a higher income elsewhere. This is called the Open Market Option.
  • Tax-free lump sum - you can usually take 25% of your pension fund as a tax free lump sum but you must do this at the same time you take your benefits.
  • Income drawdown - you can leave your money invested and draw an income from it.
  • Small pension pot - if all your pension savings total £30,000 or less and you're aged over 60 you may be able to take all of it as a partly taxable cash lump sum.
  • Choosing an annuity - if you have a partner, you might buy a joint-life annuity, which ensures an income continues to be paid after you die.
  • If you and/or your partner (if you choose a joint-life annuity) have an illness, condition or lifestyle habit that may shorten your life expectancy, such as smoking, you may qualify for a higher income.
  • Combining pensions - if you have more than one pension you may wish to combine them to maximise your annuity potential. Not all schemes allow this and you may need to ask them. You may want to speak to a financial adviser before combining any pensions as there may be an impact in doing so, and it may not be in your best interests.

Six to three months before

Contact your provider - some providers may contact you first but you can get a head start by checking with your pension provider to see how long things will take to buy an annuity and to get a valuation - although this may change by the time you retire.

Ten to eight weeks before

  • Speak with a financial adviser to consider your options and retirement plans.
  • Ask your provider for a number of different annuity scenarios.
  • Consider your options, perhaps talking it over with family and friends.

Eight to two weeks before

  • You should receive an annuity quotation pack from your provider.
  • You'll need to apply to your provider(s) if you're moving pensions from different sources.
  • You'll have received the information you need to help make a decision.

You'll need to consider your options carefully as you can't change your annuity once it's been purchased. Once you make a decision and buy an annuity it normally takes a few weeks for your fund to be converted into an income and for you to receive your first payment.

Take action

This is based on our current understanding, as at March 2014, of current tax legislation and HM Revenue & Customs practice, both of which may change without notice. The impact of taxation (and any tax relief) depends on individual circumstances.