Retirement income options for 2024
Are you one of the thousands of people retiring in 2024? If so, it’s a good idea to make sure you understand your options when it comes to retirement income.
State Pension
The UK State Pension for people retiring in 2024 is £203.85 per week, rising to £221.20 a week in April. Some people will receive less if they have not made maximum National Insurance contributions – visit this page at gov.uk for more information
Personal and workplace pensions
Pension income can of course also come from any pension schemes that you have paid into, or that your employers have paid into on your behalf.
Some people will be members of a ‘defined contribution’ pension scheme, also known as a ‘final salary’ scheme. This is a type of workplace pension that provides you with an annual income based on your final or average salary. Although some employers still offer these schemes, nowadays they tend to be more common in the public sector rather than the private sector.
More common these days are ‘defined contribution’ schemes, also known as ‘money purchase’ schemes. These workplace or personal pension schemes are where you build up a fund known as a pension pot. From age 55 (age 57 from 2028) you can use this to fund a number of income options, including:
Pension annuity. An annuity converts your pension savings into a regular income, either for life or a fixed term. An annuity provider (usually an insurance company) pays you this income in return for the money you have saved into your pension. Annuities provide a stable and guaranteed income, unaffected by changes in interest rates or the stock market. You can use an annuity calculator to see how much annuity income you could get from your pension savings.
Income drawdown. This is where you keep your pension fund invested, and take money from it as and when you wish. Because your savings remain invested, unlike an annuity, how much income you can access during your lifetime is not guaranteed and depends on investment performance. However, drawdown is more flexible than an annuity and you could benefit from future investment growth.
Whichever option you choose, you can first take up to 25% of your pension fund as a tax-free lump sum from the age of 55 if you wish.
For free government-backed information and guidance on your pension options from age 55, contact the Pension Wise service. If you are nearing retirement with one or more defined contribution pension pot, you can arrange a free 60-minute appointment to discuss your options.
Other retirement income sources
Do you have other ways to generate additional retirement income? Money you have in savings accounts, ISAs, stocks, shares and other savings or investments can all supplement your pension income.
Other options include downsizing: selling your home and moving to a cheaper one. This could let you pay off your mortgage if you still have one, and potentially leave some cash to boost your retirement fund. Make sure you weigh up the costs and benefits though. For example, don’t overlook the potential cost of stamp duty.
If downsizing isn’t suitable for you, one way to access some of your property wealth without having to sell up and move is equity release. You don’t have to make regular repayments, as the loan and interest are usually repaid through the sale of the property when you pass away or move into long-term care. It can be an expensive way to borrow however, so you’ll need to take advice before deciding if it’s right for you. To start with, see how much equity you could release and look into more of the pros and cons of this form of lending.
What’s changing in 2024?
Finally, the government has made some changes to these areas of personal finance that may affect your retirement income in the year ahead:
Boost to the State Pension. The government is maintaining the triple lock, with an 8.5% increase in the State Pension due in April 2024.
Increase in Pension Credit: The Pension Credit standard minimum guarantee will also increase by 8.5% from April, benefitting around 1.5million pensioners who receive this benefit.
Cost-of-living payments. Many pensioners will be in receipt of means-tested benefits, so are likely to receive another cost-of-living payment in February 2024.
Tax-free dividend allowance halved. If shareholder dividends are part of your retirement income, you’ll be liable for tax on dividends above £500 per year from April (previously £1,000).
Please note that this article is for information purposes only and does not constitute financial advice. Please make sure you understand all your options and the risks of each option before making a decision. You can also see a financial adviser for advice based on your individual circumstances.
