Retirement Planning

It is becoming increasingly clear that most of us cannot depend on the state to fund our lifestyle in retirement. It’s up to us to make our own pension arrangements and to ensure that we make any necessary changes to our plans whenever the Government moves the goalposts.

Pension Simplification – radical changes to pensions

6 April 2006 saw a major shake-up of pension legislation and almost everyone in the UK is affected. The principle changes affect:

• Contributions: a new annual maximum has been set, no longer linked to earnings.
• Fund sizes: a lifetime allowance has been introduced and tax will be payable on funds in excess of the limit.
• Retirement ages – the minimum retirement age will be raised to 55 in 2010.
• Taking benefits – changes to tax free lump sum entitlements.
• Retirement income options – new types of income contract have been introduced.

Saving for a Pension

The principle advantage of saving through a pension scheme is that the government will allow tax relief on your contributions. However, you must bear in mind that money you have put into your pension fund cannot generally be accessed until you retire.

There are 5 main options for those of us wanting to save for retirement:

• Stakeholder Pension: a low cost basic pension facility available to anyone (even those who are not earning). These schemes are generally aimed at those with low earnings or are not able to join an occupational or group scheme.
• Personal Pension: a contract between you and the Insurance Company to invest contributions on your behalf.
• Group Personal Pension: available to employees whose employer offers the facility. The fund you accumulate is able to be converted to a personal pension if you change employer.
• Occupational Pension: a scheme set up by your employer to provide a pension on retirement. It can also be known as a “final salary” scheme as benefits are often based on a percentage of the final salary paid by the employer prior to retirement.
• Self Invested Personal Pension (SIPP): when investing in a SIPP, the capital you invest in your pension fund remains under your control and you take full responsibility for managing its growth. This is an option that suits the hands-on investor who wants active involvement in selecting and monitoring the performance of his or her portfolio. Register your details with us to download your free copy of our Guide to Self Invested Personal Pensions.

Income in Retirement

When you come to take your retirement benefits, there are two main routes you can follow:

• Purchasing a pension contract with a provider that guarantees you a regular income for life. These contracts can be tailored to suit your individual needs (eg to include your spouse, to increase with inflation) but in essence once you have purchased your package, then your capital has gone.
• Entering into a contract whereby the fund you have built to finance your retirement is directly used – ie payments are made out of the accumulated pot. This arrangement is known as drawdown for those aged 74 and under, and is changed to an alternatively secured pension with a different set of rules at age 75 and above. This type of arrangement offers no guaranteed income and erodes the fund over time. However it does allow for any funds remaining in the pot upon death to be passed on to family members, provided the scheme is set up properly.

In both cases, you are likely to be entitled to a tax free lump sum taken from your fund. This entitlement will be 25% of the fund, unless special arrangements have been built into your scheme to protect a higher figure.

Choosing a retirement income option is a big decision, and is often an irrevocable one. We strongly recommend that you get good independent advice before making up your mind. Contact us to arrange a free initial consultation to discuss your options.

Publications/Links
Please be aware that by clicking on some of the links below you are leaving the Almary Green website. Please note that Almary Green are not responsible for the accuracy of information contained within the linked sites accessible from this page.

Guide to the Retirement Maze

Guide to Self-Invested Personal Pensions

Department of Work and Pensions: www.dwp.gov.uk

The Pensions Service (which includes the ability to get a state pension forecast): www.thepensionservice.gov.uk