Pensions for Senior Managers

3. Nearing Retirement

A pension pot can represent as much as 40 years of saving which means the final stages of retirement planning must be executed carefully.

3.1 Employees no longer have to retire to claim their pension.

• It will become increasingly common to start drawing a pension while still employed, possibly just part-time.
• Encouraging senior managers to continue working could benefit your business.
• Make sure core employees understand the cost of taking benefits early.

3.2 If you are a member of a final salary scheme your only options are to take a tax-free lump sum and an income. The income is guaranteed until you die.

3.3 Defined contribution members can take a tax-free cash sum of 25 per cent of the total fund and either choose an annuity or income drawdown.

3.4 It is no longer compulsory to purchase an annuity at retirement. Income drawdown plans offer an alternative.

• Income drawdown allows members to vary the timing and amount they withdraw from their pension depending on changing circumstances.
• If you die before age 75, income drawdown can provide a fund for a surviving partner. If taken as a lump sum, there is a 35 per cent tax charge.
• Income drawdown plans usually invest in stocks and shares which carry investment risk. Take advice before opting for income drawdown.

3.5 Consider offering senior employees a detailed financial review to help them make the best decisions at retirement.

• Contact employees at least six months, but no earlier than one year, before their retirement.
• Under age discrimination legislation, you must inform them of their right to work beyond the default retirement age (currently 65).
• Provide a comparison of options available to senior managers.
• Make sure all the company pension booklets are up to date and available to scheme members.