We all know that we ought to put more away for our retirement, but somehow it’s all too easy to put off doing something about it. Putting away even a small sum early on can make a big difference to the lifestyle you will enjoy when you retire. The golden rule for most people, is to not rely on the State alone. Modern pensions benefit from some very exceptional tax breaks, and nowadays, you can even contribute to your pension when you don't work!
Planning for retirement may be started at any time, but it is vitally important to obtain the right advice as early as possible.
Some key factors to consider when saving for retirement are:
What age do you wish to retire?
How much income do you require?
What effect will inflation have?
This is where we can help. Our financial advisers are specialists when it comes to planning for your retirement and will help you to work out how to achieve your goals. They’ll explain your pension options and then carry out your wishes to ensure that your retirement will be the one you’ve been looking forward to.
Personal Pensions including Stakeholder Pensions.
How they work
Unlike some company schemes, all personal pensions work on a ‘money purchase’ basis. This means that the money you save each month or each year into your personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. So in theory the more you save the better your pension should be at retirement.
At Retirement
On reaching retirement, you use the money that has built up in your personal pension to purchase pension benefits. These benefits can be taken in the form of either income or income with a tax free lump sum (The Pension Commencement lump sum). Or the benefits can be transferred to another type of plan which provides unsecured pension benefits. These types of plan allow additional flexibility in that pension benefits can be drawn whilst your pension fund remains invested.
The value of your pension at retirement is mainly dependent upon:
How much money you've paid in over the life of the plan
How well the money has grown
The annuity rate that the provider applies to your pension fund (if you choose to take an annuity)
Level of Pension Commencement lump sum taken. (Up to a maximum of 25% of your pension fund can be drawn as capital)
So a Personal Pension Plan is really just a long term savings plan (albeit a very tax efficient one) that is designed to produce a fund at retirement.
We also specialise in: -
Self invested personal pensions
Executive Pension Plans
Section 226 Contracts (Retirement Annuities)
Group Pension Schemes
Our specialist knowledge includes advice on imminent retirement including the following: -
Open Market Options – where the whole pension fund is transferred to a new provider who is offering a more favourable annuity rate than your existing provider, or for pension funds where the existing provider is unable to offer an annuity.
With Profit/ /Unit Linked Annuity – see annuities below
Impaired & Lifestyle Annuity – If you are a smoker or have any health issues or if your lifestyle puts you at risk there are specialist companies who offer higher annuity rates depending on personal circumstances.
Phased Retirement - (also known as 'staggered vesting'), allows the purchase of a pension to be phased, thereby allowing flexibility when considering retirement
Income / Phased Drawdown - Pension fund withdrawal (also known as Income Drawdown) is an important retirement option worth considering, particularly for individuals who have pension capital of at least £100,000.
Annuities are used to provide a pension income, in the case of pensions this income is guaranteed for life. The pension lump sum is exchange for a pension income. Once the annuity has been bought, the income is fixed, the contract cannot be reversed - the pension lump sum becomes the permanent property of the annuity provider.
The level of income that you will receive from an annuity depends upon several main factors:
The level of Investment
Age of 'annuitant'
Health
Sex
The prevailing annuity rates at the point of annuity purchase
In general, the older an annuitant the higher the income which can be secured. Furthermore males usually receive a higher income than females due to generally having a shorter life expectancy.
How they work...
Annuities, in the main, are supplied by Life Assurance Companies. The underlying 'annuity fund' is usually invested in fixed interest investments, such as long term government gilts, in order to maintain the guaranteed income and ensure regular income payments are made to annuitants.
Annuities can be set up to provide different benefits / options:-
Spouses pension (to protect a spouse, by providing an income, following the death of the annuitant)
Guaranteed payment periods; 5 years is typical but 10 year guarantees are possible
Escalation of benefits; income can be protected from inflation - RPI linked escalation, alternatively a fixed % annual increase in income can be secured at outset eg 5%.
Annuity income can be linked to investment performance for example by a 'With Profit Annuity' or 'Unit Linked Annuity'