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The state old age pension could be pretty much the prospect that awaits you
unless you make additional pension provision either by setting up a personal
pension, alternative investment plan(s) or by being part of your employer’s
company scheme. There are a number of government pension schemes that could
provide some income at retirement although some of these may or may not be
relevant to your personal circumstances. The range available includes basic old age
pension (OAP), graduated pension (ceased in 1978) and state second pension
(S2P). The relevance of these to you will normally depend on your age,
employment status and national insurance contribution record. On top of
government pensions, there are then a range of personal arrangements which can
be used to boost your income in retirement although this is not necessarily a
must.
Let’s explore the range of options available.
Occupational schemes
Employer’s set up pension schemes for the benefit of their staff. They can be
“final salary” or “defined benefit” schemes. These are schemes are governed by
Inland Revenue rules and usually, a Trust is set up for the protection of
members of the scheme. Money is normally paid in from the company, the members
or both. The money is then invested.
Members get benefits in accordance with the rules of the scheme (typically a
percentage of the final salary for each year that they have worked for the
employer and made contributions into the scheme). These are expressed as a pound
(£) pension value.
The fund is usually monitored by an appointed Actuary, whose job is to
determine whether or not there will be sufficient assets to meet the pension
payments, also known as pension liabilities. If the fund is doing well, the
company, and in theory even the employees, might be able to reduce or stop their
contributions for some time. If the scheme does badly, for example if the value
of the underlying assets fall in value, then the company will be expected to
make up any shortfall.
Alternatively, an employer may set up a "Defined Contribution" also known as
"Money Purchase" scheme. In this case the monthly contributions are invested
into a fund(s) earmarked for that particular employee who, when he or she
retires, is able to take a tax free cash sum and use the balance to purchase an
income known as an "Annuity." The range of Money purchase schemes available on
the market includes Group Personal Pension Plan, Small Self Administered Schemes
(SSAS), Funded Unapproved Retirement Benefit Schemes (FURBS), Executive Pension
Plan (EPP), Contracted Out Money Purchase Schemes (COMPS) and Contracted In
Money Purchase Schemes (CIMPS). Each of these schemes is governed by specific
Inland Revenue rules. It is therefore vital that you seek expert advice as how
appropriate they may be for your personal circumstances.
Annuities are offered by most pension providers and insurance companies and
they guarantee the policyholder also known as Annuitant an income for the rest
of their lives. There are different types of annuities on the market. It is now
also possible to draw on-going incomes from a pension fund without purchasing
an immediate annuity. Such an alternative arrangement is known as an
Unsecured Pension.
Personal pensions
Where an employer’s scheme is not available, many employees (or the self
employed) would set up personal pensions of their own. It has also been know
that some employees express a preference for setting up their own personal
pension instead of joining an employer’s pension scheme. Careful considerations
should be given before such a decision is made. An experienced Independent
Financial Adviser could assist in assessing all of the relevant factors and make
a balanced recommendation.
The benefits from pensions can, for most people, be started at any time
between the ages 50 and 75 (55 and 75 from 6th April 2010). The range of product
options available in which to build up these benefits includes Personal Pension
Plans, Self Invested Personal Pension Plans, Stakeholder Pension Plans,
Additional Voluntary Contributions and Free Standing Additional Voluntary
Contributions. There are also plans to allow you to transfer between different
types of pension to enable your retirement provision to continue to match your
needs.
One of the excellent attractions of pension schemes as a method of saving for
retirement is that the Inland Revenue offers generous tax incentives within
certain limits by way of tax relief on contributions. Tax relief is given at the
highest rate of income tax that the individual pays on their income i.e.22% or
40%. It is also in many cases possible for individuals who don’t earn enough
money to pay tax to make contributions into personal pensions and enjoy basic
rate income tax relief on such contributions.
Stakeholder Pension is the “odd” one out of the range of personal pension
plans available in that it was introduced by the current Government in 2001 as a
low-cost and flexible way of saving for retirement, especially for those on
lower incomes (even those not working), to set aside funds for their retirement
and make them less reliant on the state for financial comfort.
The key to making the most of Stakeholder pension, as with other pension
arrangements, is to start contributing as early as possible and maintain
contributions for as long as possible as that way you give yourself a greater
chance of building up a larger pension pot and in turn enjoy some financial
comfort when you retire.
Armed with this basic information which is designed to begin to guide you
through the complexities of pensions, are you now willing to ask the experts for
guidance as to the full details, contribution limits, flexibility, tax
implications, range of investment funds and what is most appropriate for your
situation? If so, contact us
NOW!
Whilst a pension may not be the be all and end all of your personal financial
security arrangements, putting one in place is an important financial planning
decision which should not be delayed. Even if retirement seems a long way off right now, just think
of what life would be like if a state pension of the equivalent of £100 a week
is all you had to live on.
Legal disclaimer
These pages provide generic information about
various aspects of financial services advice that we provide as well as possible
areas of clients’ financial planning needs. We hope they are helpful to you but
they do not, on their own, add up to proper investment advice and we cannot take
responsibility for anything you do in reliance on them without further
discussion with us. Please do not make a decision based upon the information
contained within these pages alone. They are not detailed or comprehensive
enough to enable you to make an informed decision which is tailored to your
circumstances and needs. Please contact us now for tailored advice. |
