What should you do to safeguard your finances?
As many as four million people retiring from April 2016 onwards could potentially receive an incorrect amount of state pension, an article in the Telegraph has revealed.
According to the newspaper, incorrect pension records and poorly recorded information dating back to 1978 could see millions of people given as much as £6,500 too much or too little over the course of their retirement.
The article reports that when pension schemes and HMRC compare savers' records an average of one in five does not match, an issue largely attributed to data being manually documented over the decades. A Telegraph source revealed that due to a series of inconsistent and inadequate methods, many incomes are being calculated with data that is ‘riddled with errors’.
We spoke to Justin King, a retirement specialist and co-author of 'Ready Steady Retire!' who works for MFP Wealth Management in Christchurch, to get his take on what individuals should be doing to safeguard their financial security prior to retirement.
“My view of the state pension is that you need to check your entitlement early, because you may be able to improve it,” he said. “To buy the inflation-linked state pension from an insurance company would cost a 66-year-old man around £150,000, which is a substantial amount. If you knew you were sitting on a pot of money that significant, you would do all in your power to look after it!
“Once you are fully aware of your state pension, you must then discover how it interacts with all of your other savings. We now have various rates of income tax on private pensions after tax-free cash, ISAs which are tax-free savings, tax-free dividend income allowance of £5,000 (from 6 April 2016), and annual capital gains allowance of £11,100.
“If this all sounds confusing, that’s because it very frequently is. Fully understanding your situation pre-retirement, and being aware of what your financial condition will be during retirement, is incredibly important. It’s very easy to miss a trick or two, which is why seeking financial advice can be so valuable.”