Retirement Planning
Why do I need a pension?
When you retire you still need food and shelter as an absolute minimum, but of course you will want to maintain the lifestyle to which you have become accustomed, so unless you can guarantee a large inheritance or windfall, then you need to provide yourself with a secure income for the rest of your life.
A well-prepared pension plan which is regularly reviewed should go some way to providing you with a reasonable level of income in your retirement.
A pension plan requires action as soon as possible, so start now – and if you have already started, take the opportunity to have a closer look at your existing arrangements to make sure you are on track.
How much am I going to need for my retirement?
The answer to this, of course, depends on your aspirations – what will you want to do? What will be the costs of day-to-day living for you (and your partner) in retirement? What else will you want to do now you have time on your hands? What expenses will disappear, for example children or mortgage repayments?
Once you come up with a figure, add in an amount as a buffer against the unforeseen and unexpected. Now you will have arrived at the amount of pension that you should ideally be planning for. Also, bear in mind that pensions are taxable, so you will need to allow for payment of Income Tax when arriving at your final pension figure.
I already have a pension so I’ll be fine, won’t I?
It is very important that you review the benefits of your scheme and the status of your personal plan, to establish if it is on track to give you the pension you want.
If you are in an employer’s scheme you will be able to obtain a statement from either your employer or the pension provider outlining the scheme benefits. Alternatively, contact us and we can analyse your current provisions and make any recommendations with the aim of achieving your goals.
For a personal pension, the level of contributions you have been making to your scheme, investment performance and charges will determine the size of your pension, however, as the years go by, your fund should increase and could eventually get to a size where the investment returns come into play. The larger your fund, the more advice you may need on managing the fund for optimum performance, because every percentage point increase or decrease could potentially represent thousands of pounds.
We will be pleased to regularly assess your benefits to establish whether they still have the potential to meet your objectives, and make appropriate recommendations to you.
What type of pension should I have?
Occupational pensions
Every payday, a percentage of the employee’s pay is deducted automatically from their salary or wages and invested in the scheme.
Personal pensions
A personal pension plan helps you save money for retirement and is available to any UK resident who is between the ages of 16 and 75
Stakeholder plans
A Stakeholder Pension (SHP) is a type of Personal Pension Plan designed to provide an optional lump sum and income in retirement.
SIPPs
A Self Invested Personal Pension (SIPP) is a Registered Pension scheme under the terms of the Finance Act 2004.
What are my retirement options?
With a defined-contribution plan you have two options:
Annuity – this involves taking 25% of your fund as tax-free cash and using the remainder to secure a guaranteed income for life or selected term. The factors that determine the amount of income you can expect to receive include (but are not limited to) your age, state of health, your postcode, prevailing annuity rates, the type of annuity you buy and the size of your pension fund. The income you can obtain will depend on the annuity rates that are in force when you decide to take your pension benefits and it is not possible to predict what they will be or whether they are higher or lower than current rates.
Flexi-Access Drawdown – this approach is much more flexible. The pension fund is left invested and you draw income directly from the fund. As the bulk of your pension remains invested the fund is still able to benefit from any growth (or not!) in the value of its investments. There’s no limit to the amount of income you can withdraw — you can draw as much (or as little) as you like, even the entire fund if you want.
You do not have to commit all your pension savings to one option, it is possible to have a combination to provide both guaranteed income and flexible income during retirement.
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
