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Never before has there been so much change with Pension Legislation. With the announced changes by the Chancellor in the Autumn Budget in 2014 (which came into effect from April 2015), Retirement Planning can now be a complex area, and without professional guidance, you may not be able to consider fully all your options and make a decision on what’s right for you.
Our Financial Planning Process can guide you through the various options and help you make a decision on the best ways forward. This, in conjunction with our exclusive range of Investment Solutions, can help you to plan:
The maximum basic State Pension is far below the figure on which most people say they hope to retire.
More than half of people in the UK either are not saving at all for their retirement or they are not saving nearly enough to give them the standard of living they hope for when they retire.
If you fall into this category, you have three choices. You can:
Do not rely on the State Pension to keep you going in retirement. The maximum basic State Pension of £155.65 from 6 April 2016 is far below the minimum figure on which most people state they could manage financially.
Secure income is any regular income you can rely on for the rest of your life. You will probably already have some secure income in retirement.
Your State Pension is guaranteed for life. You may also be due a retirement income from a former employer if you were in a salary-related or defined benefit pension (such as a final salary or career average pension scheme).
You may have contributed to an employer or private pension scheme where you built up your own pension pot. If you need to top up your secure income, you could use some of this pot to buy a lifetime annuity. This is an insurance policy that in return for a lump sum guarantees to pay you a regular income for life regardless of how long you live. You can arrange for this income to rise over time so that its value is not eroded by inflation. This income is secure so there is no danger of it drying up.
Once you have decided to start saving for retirement, you need to choose how to do so. Pensions have a number of important advantages that will make your savings grow more rapidly than might otherwise be the case.
A pension is basically a long-term savings plan with tax relief – your regular contributions are invested so that they grow throughout your career and then provide you with an income in retirement. Generally, you can access the money in your pension pot from the age of 55.
Once your income is over a certain level, the government takes tax from your earnings. You can see this on your payslip. If you put money into a personal pension scheme, it qualifies for tax relief. This means that as well as the money you’re putting in, some of your money that would have gone to the government as tax now goes into your pension pot instead. The government will still put tax relief into your pension pot, even if your income is too low to pay tax.
You can usually take up to a quarter of your pension savings as a tax-free lump sum. If you have built up your own pension pot in a defined contribution scheme (as opposed to a salary-related pension scheme) you can then use the rest of your pot as you choose from age 55 onwards.
You must have reached normal minimum pension age to access your pension pot – currently 55 (or earlier if you’re in ill health or if you have a protected retirement age).
Changes introduced from April 2015 give you freedom over how you can use your pension pot(s) if you’re 55 or over and have a pension based on how much has been paid into your pot (a defined contribution scheme).
Whether you plan to retire fully, to cut back your hours gradually or to carry on working for longer, you can now tailor when and how you use your pension – and when you stop saving into it – to fit with your particular retirement journey.
There is a lot to weigh up when working out which option or combination will provide you and any dependents with a reliable and tax-efficient income throughout your retirement. Be sure to use the free, government-backed Pension Wise service to help you understand your options or get financial advice – see the later section ‘Get help or advice’.
For more information, download our Retirement Options Guide.