Pension Planning

Introduction

It's important to prepare for your retirement before it comes about. 


Here, we explain why pension planning is critical, and detail some of the options available to you.


This information is intended only as guidance.

About

A pension is a long-term savings plan where you save a set amount of your income regularly during the term of your working life. This is so that you can have an income in retirement. It is often favoured as it is very tax-efficient compared to other forms of savings.


The value of a pension and the income they produce can fall as well as rise, meaning you may get back less than you invested. 

Personal Pensions

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You may wish to set up a Personal Pension if you are employed and not in a company pension scheme, or as an addition to a company pension. You may also wish to set up a personal pension if you are self-employed or if you are not working but can afford to put aside money for retirement. 


The final value of your pension fund will depend on how much you have contributed and how well the fund's investments have performed.

How Personal Pensions work

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 1. Payments In - You can typically save into a pension plan in either of these ways:

· Regular instalments 

· One-off investments

· A combination of the above

2. Tax Considerations - For individuals contributing to a personal pension or stakeholder plan, the contribution is made net of basic rate tax.

3. Investments - You will have to decide on the type of fund in which you invest your money. Most pension providers have a wide range of funds available.

Pensions & Divorce

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With pensions being most people’s second-largest asset, they can become a major consideration in any divorce settlement.


Your pension should be included in your financial settlement if you divorce or dissolve your civil partnership. If you’re not married, or in a civil partnership, your pension can’t be shared if you separate.


You can split pensions several ways, so it’s worth understanding the options before deciding what’s best for you.

The Value of Retirement Planning

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Those approaching retirement today have many more opportunities and challenges to face than their parents ever did. There are also many more ways to fund retirement, adding to the confusion about how to best prepare for all your needs.


Life expectancy is increasing, and the higher likelihood of us living longer into retirement presents an important question - will we have enough money to enjoy the lifestyle we desire and to last us, once we have stopped work?


Although it may seem a long way off, making robust financial plans now for late retirement will give you the peace of mind to enjoy your early retirement years - safe in the knowledge that you will be able to live the lifestyle you desire further down the line without struggling.


Tax treatment varies according to individual circumstances and is subject to change.

Income Drawdown

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Income Drawdown plans are complex. It is a more flexible alternative to the traditional annuity route, offering greater choice and control for many people.


Annuities are historically the most popular option in retirement, with a great many looking for the security that they provide. 


However, it's unlikely that they will continue to account for as high a proportion of retirement income products as they have in the past. 


Typically, Income Drawdown suits people who are not averse to investment risk, and who have larger pension funds.


However, there are no guarantees that income will be greater than if the fund was used to purchase an annuity at retirement. There is also no guarantee that the initial income level selected will be maintained. The costs of Income Drawdown are normally higher than for an annuity.

Your Retirement Options and Pensions Freedom

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On 6 April 2015 new pension rules came into force, giving you much greater flexibility over how you use your money purchase pension savings and the options you have in retirement.


These changes include the freedom to access the whole of your pension fund, more choice over how to receive the tax-free cash from your fund, changes to death benefits and changes to the contributions you can make.


Some of the new options are listed below: 


  • Flexi-access Drawdown
  • Uncrystallised Funds Pension Lump Sum
  • Access to the New Pensions Options
  • New Death Benefit Rule
  • Annuities

Pension and Retirement FAQ's

1. How Much Should I Invest?

You should invest as much as you can comfortably afford, as soon as you can, within allowable limits. You should not overstretch yourself. 


Most modern pension plans are flexible in terms of allowing contributions to be increased, decreased or temporarily stopped as circumstances dictate.

2. What is the difference between a defined contribution plan and a defined benefit plan?

A defined benefit pension plan provides a specified payment amount in retirement, while a defined contribution plan allows employees and employers to contribute and invest funds over time to save for retirement.

3. What happens to a pension when you die?

The way you take your pension will affect how you can leave it to your beneficiary (the person who inherits it) when you die.


Most pension options allow anyone to inherit your pension – they don’t have to be your spouse or civil partner.

4. What are your options for taking an income from your pensions?

Most personal pensions set an age when you can start taking money out from them. It normally isn't before the age of 55. Contact your pension provider if you are not sure when you can take money from your pension. 

5. What is pension carry forward?

Carry forward allows you to make pension contributions in excess of the annual allowance and receive tax relief.

6. What are the tax benefits of pensions?

  1. Tax relief on your pension contributions.
  2. Tax-efficient growth on your investments.
  3. Tax-free 25% lump sum from age 55.
  4. Potentially no inheritance tax on death.