Retirement Planning
When people think about planning for retirement they generally think about pensions.
A pension is a way to save money now to give you an income later in your life.
Pensions come in many forms, occupational schemes provided through employment, personal arrangements that you start yourselves and, of course, the State Pension Scheme.
The State Pension Scheme provides a basic level of income which many people will find insufficient if they are to enjoy a comfortable retirement, hence the need for advice to build up your retirement provision.
You can pay into as many pension schemes as you want. It depends on how much money you can afford to set aside and your level of earnings.
For most people, the Annual Allowance for pension contributions is £40,000. If your contributions exceed that you may be penalised, although it is possible to use unused allowances from previous years to boost the maximum permitted contribution.
Pension contributions qualify for tax relief, which means that they are amongst the most efficient forms of savings available.
For truly unbiased independent financial advice from an FAC adviser, feel free to call us in confidence on 01726 814935.
Workplace Pensions
Workplace pensions are currently being phased in. If you are employed, your employer may already have a qualifying workplace pension in place. If no scheme exists within your employment it soon will!
Workplace pensions will become compulsory for all employers and will result in every qualifying employee being automatically enrolled for the scheme. This may mean that your net pay reduces slightly as a result of your share of the pension contribution but will result in a pension fund, growing for your benefit, to which both you and your employer contribute. In the majority of cases you will also benefit from additional tax relief on your part of the contribution which will further enhance the monies paid in to the scheme.
Whilst it is possible to opt out of your employer’s workplace pension, you will be re-enrolled automatically on a regular basis.
It seems unlikely that you would wish to opt out of auto enrolment but there may be circumstances where auto enrolment could be detrimental to other arrangements already in place.
Personal Pensions
A personal pension is a type of defined contribution pension. You make arrangements to pay monies in to your chosen pension provider, either as a regular contribution or as ad hoc lump sum contributions.
Your pension provider will claim tax relief at the basic rate and add it to your pension pot. If you’re a higher rate taxpayer you’ll need to claim the additional rebate through your tax return. You also choose where you want your contributions to be invested from a range of funds offered by your provider.
Your pension pot builds up in line with the contributions you make, investment returns and tax relief.
The fund is usually invested in stocks and shares, along with other investments, with the aim of growing the fund over the years before you retire. You can usually choose from a range of funds to invest in. Remember that the value of investments may go up or down.
Your FAC independent financial adviser can help guide you towards a suitable pension provider and recommend funds for you to invest in, in line with your attitude to investment risk and the time you have until you plan to take benefits.
Please ring 01726 814935 for an initial discussion.
Stakeholder Pensions
These are a type of personal pension but they have to meet some minimum standards set by the government, e.g.
- Management charges can’t be more than 1.5% of the fund’s value for the first 10 years and 1% after that.
- You must be able to start and stop payments when you want or switch providers without being charged.
- They have to meet certain security standards, e.g. have independent trustees and auditors.
You can start making payments into a stakeholder pension from £20 per month. You can pay weekly or monthly. If you don’t want to make regular payments you can pay lump sums any time you want.
These plans are typically quite restrictive in terms of the funds available and, whilst a readily accessible starting point for pension savings, may not be suitable for all.
Self Invested Personal Pensions (SIPPS)
A SIPP will allow regular and lump sum cash payments, and you will also be able to transfer other pension arrangements into the scheme. If you are employed, your employer can also pay into the plan.
SIPPS will allow investments from a wider range of sources including Commercial Property, shares and unit trusts, rather than just insured pension funds.
Depending upon the type of investments held SIPPS may be considered higher risk investments and not suitable for all investors. It is important to seek advice before investing in a SIPP.
There is a limit to the amount you can invest in pension plans every year before you are taxed on your contributions. The Government sets it and it’s called the annual allowance. The annual allowance currently stands at £40,000.
As well as an annual allowance charge, there’s a limit to the amount you can have built up in any pension plan when you start taking your retirement benefits. The Government sets it and it’s called the lifetime allowance. The Lifetime Allowance for 2015/2016 is £1,250,000 and will reduce to £1,000,000 from April 2016.
For truly unbiased independent financial advice from an FAC adviser, feel free to call us in confidence on 01726 814935.