Most of us seek an independent existence; we like to have the financial resources to meet our desired lifestyles. During our working life this is generally achievable but without sufficient planning, our retirement could mark the demise of our defined lifestyle.
Pension provision is one key aspect towards planning a secure retirement.
In order to build a retirement fund it is usually necessary to put aside a proportion of income during your working lifetime in order to sustain you in retirement.
State Pension benefits are very limited when you consider that, based on today’s average life expectancy, you could live for another 20–30 years in retirement.
The Government encourage you to save through Pension Schemes by offering favourable tax concessions. Under current legislation tax relief is given on your contributions at your highest rate.
Pension funds are not taxed by the Government.
At retirement you may draw up to 25% (or higher if you have a protected lump sum) of the accumulated fund as a lump sum (currently tax free).
The residual fund is then normally used to provide you with a lifetime income which is treated for tax purposes as earned income.
There is a ceiling on how much you can invest in a pension scheme (lifetime allowance), which, at the moment, is set at £1.8 million – but is reducing to £1.50 million.
Contact us if you would like to apply for lifetime allowance protection.
The Accumulation Stage
If you want to maintain your lifestyle in retirement you need to start planning as early as possible. The earlier you tackle the problem the greater the benefits you will receive.
Pension contributions can be made on a regular basis from income or taken from capital.
Stakeholder Pensions & Personal Pensions
These types of plans normally form the initial building blocks of your retirement provision if you are self employed or do not have access to an employers’ pension scheme.
Anyone under the age of 75 can effect a stakeholder Pension or Personal Pension and they offer a high level of tax efficiency.
You can make one off single contributions or contribute on a regular monthly basis.
You may also contribute to a pension arrangement if you are unemployed or retired. However, you are restricted to a maximum contribution of £3,600 (gross).
If you have earned income available you are restricted to a maximum annual allowance of £50,000 in any one tax year (though carry forward facilities of unused relief is available) with an overall lifetime limit of £1.8 million (reducing to £1.5 million from April 2012) in respect of all your pensions plans.
A Stakeholder Pension is a type of low-charge pension which must satisfy a number of minimum Government standards to ensure that they offer value for money and flexibility.
Annual management charges must not exceed the charge cap set down by law and must be run in the interest of its members.
All stakeholder schemes must accept contributions of £20 or more though some may accept lower payments. The pension contract must not impose charges for transferring into or out of the scheme.
The range of funds in which you can invest is usually limited compared to a non stakeholder personal pension pension.
Personal Pension Plans do not normally have any charge guarantees and as a result often offer a wider range of investment options than a stakeholder pension. It is also normally possible to build in the cost of independent financial advice fees within a personal pension plan.
Self Invested Personal Pensions (SIPPs)
SIPPs offer individuals the opportunity of being more closely involved in the investment process with a much wider range of funds to choose from. Purchase of business premises is a popular choice for SIPP investors.
Please fo contact us for advice in this area.
Small Self Administered Schemes (SSASs)
These pension schemes offer a very wide choice of investment options and are suitable for business owners.
- Investment Options include;
- Commercial Property
- Investment Funds
- Equities (including unquoted shares)
- Discretionary Investment Manager
- Alternative investment funds
- Loans to and purchase of shares in sponsoring employers
SSAS’s are not regulated by the Financial services authority.
Employers may wish to provide retirement benefits for their employees as part of their employment contract.
Usually this is arranged on the basis of a percentage of salary being invested on behalf of each employee into an Insured Scheme. It may be arranged on an employee contributory or non-contributory basis.
The Government’s Pension Reform legislation requires all UK employers to set up a process to automatically enrol eligible employees into NEST* or into an alternative qualifying pension scheme. Contributions of at least the minimum level must be made on their behalf.
The date when the new rules apply to each employer depend on the company’s size and will range between October 2012 for the largest employers and September 2016 for some smaller employers. The actual date will be confirmed to the employer by the Pensions Regulator at least 12 months in advance.
*National Employment Savings Trust – the Government’s default scheme for auto-enrolment. NEST is designed for low earners and small employers who choose not to set up their own pension scheme.
Old & Frozen Pensions/Transfer Values
Most people are likely to accumulate a variety of different pension plans throughout their working life.
If you have one or a range of pension plans we can review these and advise whether it is in your best interest to transfer the value to an alternative pension provider, or simply retain it and make some internal improvements.
Your provider may be closed to new business and subsequently have only a small number of investment funds and unable to attract top investment managers. Alternatively your plan may have valuable in built guarantees – we will find out the detail for you.
At your selected retirement date you will want to obtain the best possible benefits available.
We can analyse each plan and provide you with an informed opinion of your options.
We can provide expert advice on whether it is likely to be in your best interest to effect a transfer from one pension scheme to another.
Open Market Option
By the time you reach your selected retirement date you may have accumulated a number of different pension plans during your working lifetime, each one offering a number of different options.
Insurance companies convert an accumulated fund into a Pension Annuity using mortality tables based on average life expectancy.
It is a competitive market and rates fluctuate on a daily basis.
You are allowed to transfer your accumulated fund from your present provider to another Insurance Company offering a higher Annuity rate.
Some older type pension contracts offer important guarantees.
We will review all the options on your behalf taking into account your health and financial considerations.
A Lifetime Annuity converts money from your Pension fund into pension income, which is taxed.
There are different types to suit your circumstances.
Enhanced Annuities (Impaired lives and/or Smokers)
Specialist Annuity providers will take into account your individual circumstances and the state of health of you and your spouse.
If either of you have a serious illness or condition which may affect your life expectancy this will be reflected in the terms offered.
Smokers are also normally able to achieve an enhancement as are people with minor medical conditions such as high blood pressure and cholesterol.
Drawdown (Capped or Flexible)
It is not necessary for you to draw your income as an Annuity in retirement. Instead you may opt to take your tax free cash from your pension find and leave the balance invested from which you can draw a variable income (within limits – unless you qualify for flexible drawdown).
There are many different considerations to take into account when reviewing this alternative route. The size of fund, your attitude to risk, your state of health and whether you have other income available.
Phased retirement is a tax efficient means of providing income and gives you the opportunity to stagger your retirement and only to draw what is actually needed from your pension pot, thus leaving the balance of your fund invested with potential for future growth and initially improved death benefits over full withdrawal of your pension fund.
Long Term Care
The reality of living too long is that your health tends to deteriorate as you get older and there comes a time when you can no longer manage on your own without help.
This may be a question of buying in care so that you can continue to live in your home or sheltered accommodation, or, going to live in a residential or nursing home.
In most cases there is very limited help from the Local Authority and you are expected to fund the cost out of capital or income. Careful planning can alleviate your worries and concerns.