BLRFC are Authorised and regulated by the Financial Services Authority
"Early retirement age will rise from age 50, to age 55 by the year 2010"
About Pensions
Pensions are, of course, designed to provide you with enough income to live comfortably after you have retired from work.
There are many different ‘tools’ used to save for retirement and the taxation and investment elements of pensions can sometimes appear baffling. As Independent Financial Advisers we specialise in explaining, recommending and monitoring pensions for our clients. There is currently a choice of four sources of pension to fund for your retirement:
The basic state pension - for people who have paid National Insurance contributions while at work or have been credited with contributions.
Additional state pension - this is now the State Second Pension (S2P). Before 6 April 2002, you built up SERPS (State Earnings Related Pension Scheme) pension. Both are available to employees earning more than a given amount (the lower earnings level for National Insurance contributions). Many people who are not working because they are caring for young children or an elderly relative, or because of disability or long-term illness are also able to build up State Second Pension (but not SERPS). Additional state pension is not available in respect of self-employed income.
An occupational pension through an employer's pension scheme - if your employer runs a pension scheme, it’s usually a good idea to join.
A personal pension scheme (including stakeholder schemes), are open to nearly everyone and especially useful if you are self-employed or your employer doesn't run a company scheme.
For most people, State pensions won’t produce the same level of income that you will have become accustomed to whilst working. The basic state pension is only £90.70 per week (2008/09) for a single person (though you would be able to claim means-tested state benefits if that was your only income). It's important to start thinking early about how best to build up an additional retirement fund. You're never too young to start a pension - the longer you leave it the more you will have to pay in to build up a decent fund in later life.
Personal and Stakeholder Pensions
Personal Pensions represent a popular and attractive way of saving for your retirement.
All monies invested into your fund grow free of capital gains tax, and the contributions you make are enhanced by income tax relief at source. For example if you invest £80, the government adds on tax relief (currently 20%) to enhance your contribution to £100. If you are a higher rate taxpayer you can claim additional relief through your pay coding.
A personal pension is an arrangement made in your name over which you have personal control.
You can alter your contributions, suspend them, or stop them completely.
You will be eligible to take 25% of your accumulated fund tax-free when you retire, at any time from age 50 (rising to age 55 by 2010). There are a range of options to consider when you decide to take benefits whether before or after age 75.
Personal Pensions usually offer a range of investment funds to suit your own attitudes, and you can change your investment at any time.
Stakeholder pensions are similar to Personal Pensions but have their charges capped at 1.5% for the first 10 years reducing to 1% thereafter. Whilst Stakeholders are generally considered a little cheaper than Personal Pensions, investment choices may be restricted.
Advanced Pensions & Simplification
In recent years the pensions industry has become more advanced in terms of the flexibility of investments available and the structure of the actual pension arrangements.
This is an area of constant change and you should need to take advice regularly to make preparations for a secure and enjoyable retirement.
Self-invested Personal Pensions (SIPPs)
A Self Invested Personal Pension (SIPP) plan is a tax-efficient wrapper within which a wide range of investments can be held (Generally commercial property, land). A new SIPP must appoint a scheme administrator, usually the recognised product provider. SIPPs have the same tax benefits and regulations as conventional personal pension plans but you and / or your advisers have more control over the investment choice - each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for Her Majesty's Revenue & Customs (HMRC) purposes.
The range of permitted investments is extensive and includes more conventional investments such as deposits, unit trusts and individual stocks and shares and also more unusual assets such as commercial property. The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self investment’ are only advantageous to people with very large funds, and/or investors with some level of sophistication when it come to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP, and these charges would erode smaller funds quickly.
Pensions Simplification
‘A’ Day arrived on 6th April 2006 and brought with it sweeping and radical changes for all pension plans – whether occupational or personal. These changes allow more flexibility for your retirement planning than previously permitted.
All individuals have 3 years from this date (up to 6th April 2009) to register for transitional protection in relation to some of these changes. Why not contact us today for a full review?
Since this date there is just one set of tax rules for all types of pension, with an individual Lifetime Allowance on the size of the pension fund you can accumulate (£1.65 million in 2008/2009) and an individual Annual Allowance on the amount of contribution payable (£235,000 in 2008/2009). These limits will increase each year, and exceeding the limits will trigger a tax charge.. Schemes already in existence before this date will need to update their rules to allow some of the new flexibilities.
The ‘A’ Day changes have made the majority of pensions much simpler, with a number of key advantages -
- Pensions are much easier to understand.
- Most customers now have greater flexibility in the size and timing of their contributions.
There will also be a number of other changes including:
- Early retirement age will rise from age 50, to age 55 by the year 2010
- Full concurrency (i.e. being able to pay into a number of different types of pension plan), subject to the annual allowance
- Wide investment flexibility
- Up to 25% Tax Free Cash will be available from the majority of pension schemes
- The ability to commute ‘small’ funds as a one off lump sum as opposing to having to draw a trivial amount of pension income
- Flexible options at retirement when deciding to take benefits
- No need to ‘have to’ secure benefits at age 75 via an annuity
Company Pensions
Many companies offer a pension scheme to their employees. There are numerous different types available and usually the company will put some money into your pension if you decide to join.
It is important that you take into account your existing pension provision or that from your previous employer before making any decisions.
We can explain the features of your company’s arrangements, and may be able to assist you to select the right investment funds for your own needs.
If you are a company director, we can advise on the best way of funding your pension through the business.
Why not contact us and review your retirement planning?