Video series: ‘Sofa talks’, episode 3 - Experts answer questions about pensions
This series sees experts at ABN AMRO answer questions from clients. On the sofa today: Peter Beets (Wealth Planning Expert, ABN AMRO) and Bobby Le Febre (adviser from the Preferred Banking team). In this episode, they zoom in on the topic of pensions.
I’m 50 years old. Is it too late to do anything about my pension now?
No, not at all! It’s very common for people to start thinking of their pension around that age and ask themselves: where do I stand? You might decide that your current pension is not where you want it to be and you want to do something about it. But you’re certainly not too late.
What should I do if I want to retire five years early?
That’s a very popular subject right now, actually. The state pension age continues to increase. It’s 67 years in 2024. When I look at my pension overview, it suggests I’ll have to keep going until I’m 71. But many people don’t want to work that long. So they want to look into retiring earlier.
Start by looking at what you’ve got so far. Do you have a pension with your employer? Does it give you any options to retire early? And if so, how do you go about it? If not, what else do you need to do?
I want to continue working after reaching state pension age or taking my pension. What should I bear in mind?
In many cases, you certainly can do that. It depends on what your employment contract or collective labour agreement says. In many cases, your employment ends by law when you reach the state pension age. But if it does, a new agreement can be concluded. In consultation with each other of course, because certain conditions will have to be discussed again.
Continuing to work after state pension age does change things when it comes to sick pay. For example, you are only entitled to a maximum of six weeks’ pay in the event of illness. You are also no longer insured for unemployment benefits (WW) or incapacity for work (WIA) contributions.
At the same time, your pension will start to be paid out, unless you postpone it if you continue working. The good news is you can postpone it if you want, and you’ll be entitled to a higher pension benefit, because the term is shorter. You can then start taking your pension further down the line. You might want to think twice though, because how long will you be able to enjoy your pension for?
Another important point is that if you add up your state pension, your private pension (if you’re receiving it) and your salary, you might fall into a higher tax bracket. You would then be taxed more heavily on your income. So, it’s worth weighing it all up.
I want to invest in real estate for my pension. Is that a good idea?
Investing in real estate has been very popular for some time. It’s all about building up a passive income from the rent you receive. However, we see that interest rates have risen enormously. So, financing real estate has become a lot more difficult and more expensive too. If you’re renting out properties, returns are coming under pressure from upcoming legislation. The way taxation works is also looking very different. The government is taking a big bite out of profits from property.
The landscape is changing, but it really does depend on your individual situation, so you should look at the overall picture. But whatever you invest in, spread the risk. Don’t just invest everything in real estate, or in securities, or in a savings account. But try to achieve a good spread between those various types of assets.
I heard you can make a one-off withdrawal when you retire. How does that work?
Yes, this could become a possibility under a bill that is going through parliament. But it has already been put back from 1 July 2023 to 1 July 2024. This should theoretically make it possible to withdraw 10% of your pension pot in one go. So you would have that immediately at your disposal if you’re planning to spend it on something big, or whatever decision you want to make.
But since you now have this large amount of money sitting in your account, the drawback is that you’ll need to pay more payroll tax.
Taking out a lump sum from a large pension pot can land you with a bigger tax bill, because you’ll end up in a higher tax bracket. It may also mean that you miss out on certain allowances, because these depend on your income. The higher your income, the lower the allowance.
What’s more, pension legislation offers certain options that you wouldn’t otherwise get. One of these is the ability to vary your level of pension payments. You can opt for a higher benefit, up to a certain amount, just after your retirement start date. This could be handy if you want to travel or maybe because you are still making interest payments on your mortgage, which are lower later on. But those options aren’t available if you go for the lump sum. So I’d say: talk to an adviser before you make any drastic decisions.
If you have any questions about your finances, or you’d like to talk to an adviser, go to COACH and use one of our exclusive contact options for Preferred Banking clients.
