Pensions, investments and general retirement planning is very much our specialist subject. Structuring an effective retirement solution will be one of the most important financial decisions you make. It is therefore essential to get advice from someone who has the required level of expertise and experience.
Not only do we advise individuals and companies we also provide specialist services for solicitors.
In essence, pensions are a simple concept, they are a savings scheme with certain tax advantages designed to provide an income for you when you stop work. This may be provided by your employer, self-funded, or a combination of the two.
Planning For Retirement
Part of the work we are involved in is assisting people in planning for their retirement. This includes making an assessment of the expected income from the various pension schemes they already have (if any), and determining how much will be needed in order to achieve their target retirement income at their target retirement age.
“When you retire, it doesn’t matter how much you have earned, only how much you have saved!”
This is much like planning a journey using a map. First of all we need to determine where we are starting from on the map, without this it will be impossible to plan a route effectively! That is why we will need details of your various existing pension schemes. These may be schemes from a previous or current employer where the benefits are based upon your final salary or it may be accumulated funds in an employer’s scheme, or a personally funded pension scheme.
Next we need to determine where you want to get to “on the map”. It is important to have some idea of when you would like to retire and the rough level of income you would like to receive during retirement. We will help you assess this by discussing with you your financial objectives, in the context of your current income and outgoings
Lastly we need to determine how to get there! For this we will need to advise you on the most appropriate pension “vehicle” and the contributions you will need to make to your existing employer’s scheme or to your own funded pension scheme in order to achieve your target. We will also advise you on the most tax efficient way of making your pension contributions.
The Government has relaxed the limits on how much you can pay into a pension scheme and now allows you to make contributions to your own personal scheme alongside an employer’s pension scheme.
There are limits set by the government on the amount you can put in to pensions and the amount you can take out. For some, these limits will not be relevant and it will simply be affordability that determines the level of pension contribution, for others careful planning is required in order to avoid any excess tax charges.
The vehicle we recommend for your “travel” to retirement will depend upon your own personal circumstances and how actively involved you wish to be in the investment decisions. This can vary from the “hands-on” self invested personal pension (SIPP) using it to purchase commercial properties, to the simple stakeholder pension scheme. Once again we will assist you in the choice of the most appropriate pension vehicle for you and will assist you in the management of the scheme.
For many people however, if your employer is willing to pay in contributions to a company scheme then it will be best to join this scheme in order to benefit from the employer’s payments, at least until you leave or reach retirement.
The State Pension
The State also assists by providing a State Pension . Whether or not you get this full entitlement depends on your national insurance record. Mothers also get a credit for the years they received child benefit for any children they were looking after. Over the years the State Pension has been changed by various governments but currently to get the full entitlement you need 35 years credit in your National Insurance records.
You were able to divert that part of your National Insurance contributions that would normally entitle you to benefits under S2P or SERPS which was a State Pension top-up scheme. These National Insurance contributions could be paid into your own pension scheme (Some employer’s schemes did this automatically). This was called “contracting out”. The government has now decided to no longer allow contracting out and has allowed schemes to merge the benefits previously held separately as ‘Protected Rights’ with the rest of the funds accumulated in the pension scheme.
The Government is constantly varying the terms of the state pension entitlement as it battles against the increasing cost of longevity. The state pension is really only set at a level to provide subsistence income and should not be relied upon to provide an adequate income in retirement.
It is important to note that with the state pension there are NO rights, there is NO contract and the money pensioners are paid in the current year is taken from current taxation and national insurance contributions.
Taking Your Benefits At Retirement
Under the new legislation you are normally able to draw a quarter of your pension fund as, in government speak, a “Pension Commencement Lump Sum” (tax-free cash). It is not always best to draw the tax-free cash especially if you are in an employer’s pension scheme where the amount of pension you sacrifice in order to receive the tax-free cash makes it inefficient to do so. Once again we will assist you by advising you on whether or not to draw the tax-free cash in your particular circumstances.
The remainder of the fund is used to provide an income for you during retirement. The earliest you can draw your pension is 55 and there are various ways in which you can draw your pension benefits.
Firstly you may choose to purchase an annuity. This provides you with a predetermined level of income for the whole of the rest of your life and may also include a continuing spouse’s pension. It may be payable for a minimum of five or 10 years irrespective of your survival and thereafter for your lifetime and it may be increasing or level during retirement.
We will not only assist you in determining the most appropriate choices with regards to the format of your income but we will also find for you the most appropriate annuity provider in the open market.
Some older private pension policies have guaranteed annuity rates built into them. This often gives you a better income than could be secured in the open market. We will always ensure that we check carefully the terms and conditions of your policy to determine if there are any advantageous clauses.
In addition, if you are in ill health or have smoked for many years we may be able to secure for you a specially enhanced annuity rate.
Under the new pension rules introduced by George Osborne, you need not purchase an annuity but can draw the income directly from the pension fund. This has additional advantages, for example it enables you to pass part of your pension fund on to your heirs in the event of death, but it also carries with it additional risks because the fund remains invested and so can rise and fall in value, rather than providing you with a fixed income.
There are also other options including phased retirement, with profits and unit linked annuities and we will discuss these options with you and we will advise you as to the most appropriate form of income for you during retirement.
For many schemes, once you have made your decision about the form of your retirement income it cannot be changed and it is therefore essential that you receive advice before drawing your retirement benefits.