Throughout your working life, no matter what age you are the most important investment decisions you will make is organising your retirement provisions. If you do not carry out any retirement planning, you will be reliant on the minimal benefits from the two types of state pension:
- Basic State Retirement Pension - From 6 April 2008 increased to £90.70 per week (single person) and £145.05 per week (married couple).
- State Second Pension (S2P) – Previously State Earnings Related Pension (SERP) and is based on class 1 national insurance contributions during your lifetime. If you are self-employed during part of your working life you will not make class 1 national insurance contributions and therefore will not qualify for S2P for this period of employment.
Many people seek to enhance their retirement income by contributing to an employers pension scheme and/or their own personal pension. You benefit from tax relief on your personal contributions, as well as the potential for long-term stock market growth. With occupational pensions, you have the added benefit of employer’s pension contributions being added to your own funds.
It is important to understand that pensions are essentially tax deferred investment vehicles as opposed to ISAs (Individual Savings Accounts) which are free of personal tax. When taking your retirement benefits from an occupational pension or personal pension, you will be provided with a tax free lump sum along with a regular benefit which is taxable as earned income.
Choosing the right pension is not always the most straightforward decision. New legislation introduced by the government in April 2006 (named “Pension Simplification”) aimed to provide a simpler and more flexible structure. Certain elements of the re-structure have also created more generous tax breaks for some individuals.
To obtain the most suitable retirement planning advice, it makes sense to contact an independent financial adviser who is able to fully understand your retirement needs and objectives. Whether you have existing provisions (occupational pension and/or personal pension), you are approaching retirement, or are planning for your future retirement I provide unbiased and independent pension advice for personal pensions, pension transfers, annuities, unsecured pensions (including income drawdown), and Self Invested Personal Pensions (SIPPs).
For more information, please contact my office on 0800 6345 422 or
Click Here For A Free Financial Planning Consultation
Occupational Pensions
This type of pension scheme is one of the most vital, popular and beneficial ways of providing income in retirement. The majority of employees have access to a pension scheme which they can contribute to along with their employer. Unfortunately, approximately 80% of Final Salary schemes nationwide are under review and are due to close or be significantly amended in the next few years. It is therefore immensley important for you to be able to make an informed and crucial decision about your future standard of living in retirement.
Additional Voluntary Contributions
(AVCs) are usually available to increase retirement provisions and attract tax relief on contributions made from each employee. The AVC provider is often chosen by the employer, with further information available from the employer’s pension scheme administrators.
Personal Pensions
There are a variety of different options available including standard personal pensions, stakeholder pensions or a Self Invested Personal Pensions (SIPPs). These pension plans are suitable for self-employed people and anyone who wants to make additional pension contributions. There is also no minimum age for contributing to a personal pension. Under the Pension Simplfication 2006 amendments, the government made various changes to allow pensions to be more flexible. These include increasing the maximum annual contribution to 100% of your annual income, introduction of a Lifetime Allowance (£1.65 million for the 2008/09 tax year) and protected rights are being brought in line with non-protected rights.
Pension Annuities
A pension annuity pays a guaranteed income for the rest of the life of the policyholder. There are various options available including level or increasing income payments, guaranteed income periods and benefits for the policyholder’s spouse. Payments arranged to increase on an annual basis help to protect against the risk of inflation. Annuities also provide peace of mind with guaranteed payments for life and have no associated investment risk. It is an important decision to make because once pension funds are vested this decision is final and annuity rates currently available may not be as competitive as annuity rates in the future if retirement is delayed.