5 Other options for cash in later life
If you don’t expect that your pension savings will be sufficient for you in retirement, there are other means to help fund your lifestyle.
You may have accumulated a savings pot which you could dip into when you retire to cover some of your income needs.
Downsizing your home is one way to take some of the equity you have in your home and perhaps pay off any remaining mortgage you have in the process. You might not want to - or need to - do this immediately when you retire but it could be an option for you later on. However, if you do plan to downsize don’t leave it too long. As time goes on significant events such as moving home may become harder.
The equity release market is booming in the UK. This is being fuelled by the huge rise in house prices over the past thirty years, the convenience of raising cash whilst not having to move home, and the need of many retirees to supplement their pensions. The money released is secured against your home and is repayable when you move into long-term care or pass away. Given the complexities the Financial Conduct Authority (FCA) requires financial advice to be provided if you are considering this type of borrowing. The subject is explored in depth in the Open University course Retirement planning made easy which looks at equity release products and their pros and cons. (The link to this course is in the additional resources section.)
Many people anticipate that they will benefit from some form of inheritance in later life. Again the size of estates has been boosted by the growth in property values in recent decades. The thresholds for inheritance tax are sufficiently high for most estates to avoid any liability. The challenge for those hoping for an inheritance to help them out in retirement is that there is no certainty about when an inheritance may be received or how much it may be. There is also a risk of legal challenges to the terms of a will which may leave you with less money than hoped for.
Your pension legacy
Finally on the pensions MOT checklist are your ‘expressions of wishes’.
You can ask for any money left in your pension pot when you die to be paid to your named beneficiaries in whatever proportions you choose. It can be paid to whoever you want, such as family, friends or your favourite charities. Your wishes will normally be respected but there may be times when the scheme trustees might need to use their discretion as to who receives the benefits; for instance, where your circumstances have changed through death or divorce since you made your choices.
Note that expressions of wishes only apply to private pensions.
Completing an expression of wishes means that your pension money doesn’t form part of your estate and so isn’t normally subject to inheritance tax.