PENSIONS
Individual Retirement Planning
Retirement may feel like a long way off and starting a pension may be the last thing on your mind. However with average life expectancy continually increasing , it is more important than ever to make plans to save for your retirement and with considerable tax relief available, a pension is usually the best investment vehicle to use.
This combined with the relatively small income from the state makes it pertinent to investigate all the options available to you.
What can you expect from the State?
The basic state pension is only £90.70 and £145.05 for a couple (2008/2009).
Could you live on this today even if you had no mortgage / debts?
You may be entitled to a second state pension which used to be known as SERPS and is now called S2P which we can look at as part of your retirement planning.
Why start a pension earlier?
The sooner you start the better the return will be. The table below gives an indication of your estimated monthly pension at 65 if you regularly put £100 per month into a pension fund. To achieve the estimated monthly pension indicated £100 must be contributed from the age 'you are now' right the way through until age 65
| Current Age | Estimated Monthly Pension at Age 65 |
|---|---|
| 25 | £957.95 |
| 35 | £495.05 |
| 45 | £233.05 |
At Wallwork Ludlow we can explain the difference between the different types of pension provision and tailor a pension to your individual circumstances. We can also discuss your position on existing provisions you may have already in place.
Group Pension Plans
Whilst there is a legal requirement for any business employing five or more people to set up a pension plan (at a minimum - a stakeholder pension scheme), most employers want to encourage staff to provide for their retirement. A popular way of doing so is to contribute a percentage of the employee’s salary, conditional on the employee contributing the same amount. This ensures that the employee benefits from attractive terms should they be interested in their future planning.
Under the new pension reform rules to be introduced in 2012, employers will be legally required to contribute 3% of an employee's salary, with the employee contributing 5%.
Independent Financial Advice will therefore be a must for any employer who wants to keep up with government legislation.
At Retirement
There are a number of different options at retirement, such as taking a conventional annuity or you may wish to only take the Pension Commencement Lump Sum (PCLS) and defer taking your income until a later date.
Wallwork Ludlow will guide you through the various options and offer you the most tax-efficient way of taking your retirement benefits.
Annuities
Finding the right annuity for you could be one of the most important financial decisions you make. You've worked hard and made sacrifices to build up your retirement fund now you want that fund to work hard for you. By taking a little time and effort you could increase your retirement income by up to 40% but there are many considerations to take into account.
There are many options at retirement including:
- Conventional Annuities
- Impaired Life Annuities
- With Profits Annuities
- Guaranteed Annuities
An annuity income may not be your only choice. An alternative may be an Income Drawdown Plan.
Income Drawdown
If you are interested in Pension Fund Withdrawal or Income Drawdown, We would be pleased to discuss this matter with you in more detail. This is an area of retirement planning that requires advice. It is extremely important that we ensure this is the correct way to take your retirement benefits.
It can allow you to:
- 'Phase' the taking of your retirement benefits, in a tax efficient manner.
- Take your Tax Free Cash lump sum and take an income from the remaining money, giving you flexibility (deferring the purchases of an annuity and the associated choices).
- Take your Tax Free Cash lump sum and take no income, leaving the remainder invested for the future.
- Allow you to take your benefits, whilst providing flexibility in death for your spouse / dependents, offering more choice than an annuity.
- The normal minimum age that you can draw your tax-free lump sum is currently 50 - but this will change to age 55 from 6th April 2010.
These are just a few of the potential benefits but there are many risks as well. These need to be fully explained. Taking your lump sum early may reduce your eventual pension at retirement.
Wallwork Ludlow can help you maximise your income in retirement in the most tax-efficient way.
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