According to him, pensions should be accessed last because of their tax-efficient nature.
He notes: “Essentially, the current pension rules often imply that access to pensions should be deferred, within reason, as a pension falls outside of an individual’s estate for the purposes of inheritance tax, and death benefits can be a very beneficial part of the overall plan to defend family wealth over the longer-term.”
Mr Pennington adds that using a financial planner means that an individual’s marginal tax rate will come into play and the planner will review how effectively the client is using their income tax allowances, personal annual capital gains tax exemption and marginal rates.
“A planner will also consider if the individual can enjoy the fact that CGT is at 20 per cent when compared to income tax at higher (40 per cent) and additional (45 per cent ) rates,” he adds.
Several in the industry stress the importance of using a financial adviser for the decumulation phase.
Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, says: "To improve their chances of making the right decision, and avoid costly mistakes, retirees should seek professional independent financial advice."
He adds: "At-retirement is complicated, as an individual’s pension fund is typically one of their largest assets."
“Advisers should use tools, such as cash flow forecasting, to model decumulation options and identify any potential shortfalls well in advance of later life,” suggests Mr Pennington.
saloni.sardana@ft.com
