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    Tag: Retirement Planning

    Retirement planning at different stages of life

    Posted on by Katie Heaton

    It is often a misconception that retirement planning is only something that you need to think about later in life. However, the sooner you start to plan for your retirement and consider your pension options, the better, and the more chance you will have of building up the finances you require to live your desired lifestyle when you reach retirement age.

    We take a look at some of the key things to consider during different stages of your life to ensure you get the most out of your retirement.

    Age 20-35

    This is roughly the likely age you will start your first full time job and probably a stage of your life where the last thing you are thinking about is your pension. However, this is without a doubt the best time to start saving into your pension as the earlier you begin, the more time your money has to grow and it is highly likely to be something you will thank your younger self for in years to come.

    At this age you may have other financial commitments which you consider a higher priority, such as saving to buy your first house, clearing any student debt you may have, or simply having as much disposable income as possible to lead a fun and carefree lifestyle.

    You will also be earning less at this stage of life, therefore you might not have the flexibility to increase your payments into a pension as much as you may ideally like to.

    By law your employer must automatically enrol you into a pension scheme (providing you are eligible for automatic enrolment) and make contributions on your behalf. Increasing that by paying in even a small amount yourself can make a huge difference in the long term.

    Age 35-50

    By this age, you may have increasing responsibilities and be handling the demands of a mortgage and the extra costs that having children may bring. However, you may be earning more than when you began your career and may be able to consider paying more into your pension as a result. In fact, if you are earning more than £50,270 a year, you would qualify for 40% income tax relief on your pension contributions, so it is certainly something worth exploring.

    It may also be a good idea during this stage of life to look further ahead and begin thinking about the realistic sort of lifestyle you are hoping to live when you reach retirement, and maybe more importantly, when you would like to retire and what you would need to do to achieve that.

    Age 50-65

    Once you reach this stage of life, you are probably much more focused on your retirement plans.

    Although you will now be getting closer to retirement age, if you are worried that your saving pot is not going to be what you were hoping for, it’s important not to panic and there can still be plenty of time to make a difference.

    Hopefully as you reach this age some of your financial commitments may begin to ease. You may be getting close to paying off your mortgage, your children could be relying on you far less financially and you potentially may also be earning the most you have earned as you climb to the top of the ladder in your career. All these factors may mean that you are in a position to consider ploughing more money into your pension, especially if you’re worried that previous contributions may have left you short of your ideal.

    If you are fortunate enough to have built up any savings and are happy to forgo the access to the funds, you could look to make a lump sum transfer to your pension which could give you a great boost. The most you are able to pay into a pension in any year and receive the upfront tax relief is 100% of your earnings (normally up to £40,000) or £4,000, whichever is lower. However, dependant on earnings, your pension contribution allowance could be capped at a lower level and therefore seeking advice is important.

    Potentially you could pay in more if you are eligible for ‘carry forward’, this is where you can carry over any unused allowance from the last three tax years.

    Having a much clearer idea of what you are looking to achieve in retirement can make it far easier to decide which of the above steps are going to be right for you. The more precise you can be with what you are looking for, the easier it is to implement a specific plan to get you there.

    Age 65 plus

    By this age, your main focus is going to be how you use the wealth you have worked so hard to build up throughout your lifetime to provide you with the income you need to live your desired lifestyle.

    Obviously, this will be different for everyone but when looking specifically at your pension you will have two options to consider. The first is buying an annuity and securing a guaranteed lifelong income from this. The second is taking payments flexibly from your pension using what is referred to as Flexi Access Drawdown.

    Each option has different benefits and downsides so it’s something that needs careful thought and expert advice.

    The drawdown option is good because you are able to draw money out as and when you please but the main downside of this is that you do run the risk of potentially running out of money further down the line, particularly if your investments don’t perform as well as you were expecting them to. However, you do continue to benefit from investment market growth over your retirement journey.

    The annuity route provides you with the reassurance that you will get a fixed and guaranteed income for the rest of your life, but this decision cannot be reversed once chosen and you would no longer have access to the capital, which means there would be no inheritance to leave to your offspring from your pension.

    However, the great thing is that you are able to use a combination of the two, giving you the best of both worlds and enabling you to tailor your options specifically to your individual circumstances and what you are looking to achieve.

    Finally, if you have paid the qualifying national insurance contributions throughout your working life, you will also be entitled to a full state pension once you reach 66 (67 from 2028). That could give you a further £185.15 a week which could make a huge difference.

    Summary

    Hopefully you are now a little clearer about the sorts of things you should be thinking about during the different stages of your life in relation to your retirement, although these tips can be useful, tailored advice to your specific circumstances is always the best way to ensure you’re planning for the future you want to achieve and getting the most from your investments.

    For further information or advice, contact a member or our financial planning team by emailing enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice. 

    Should I consider switching my pension elsewhere?

    Posted on by Katie Heaton

    Many clients ask us this question and if this is something that has been on your mind, it’s important to look at all the information carefully before deciding if it’s in your best interest to do so. There are many factors that mean if you aren’t careful, you could potentially lose out.

    Why are you looking to transfer?

    Perhaps you are looking to increase the control you have over your pension, hoping for a better return, starting a new job or your existing pension is closing. Whatever the reason, your key considerations should be the same.

    Many providers offer great benefits to keep your pension on their scheme, such as a financial bonus like a guaranteed annuity rate, life assurance cover, guaranteed growth rates or a preferential rate of tax free cash. This alone could be enough of a financial incentive to mean it wouldn’t make sense to transfer to a new provider.

    You may have been tempted by an attractive offer from a different provider but always consider if the headline offer is as good as it may first seem when you take everything into account. Pension rewards can rarely be carried between providers, and you may be faced with costs for making the transfer. Your financial adviser can help you look after your pension either with the current provider or with a new provider.

    What would the cost be?

    There may be exit costs involved if you decide to leave or transfer your current pension plan and this amount tends to vary between providers. Very rarely there may be no exit fees to pay, so it’s certainly something worth looking into. Your adviser would also likely charge you for their time, work and advice.

    Will I lose out on my bonuses?

    As briefly mentioned above, there are often certain bonuses included in pension schemes to encourage long-term savings, which is essentially what pensions are all about. You need to be very careful that transferring your pension won’t mean you are going to lose out on any attractive financial benefits. For example, if you were to lose a life assurance policy by transferring, potentially it could actually cost you more to replace the life assurance than you stand to save.

    It’s vital to weigh up the pros and cons thoroughly as once you have made the decision to transfer, there will be no going back if you later decide it may not have been the best decision after all.

    Other things to consider

    Although more common with older pension schemes, guaranteed annuity rates mean that at a certain age, part or all of your pension pot will be transferred into a guaranteed lifetime income. If this applies to your pension, you will normally get a much better rate with an existing scheme than you would buying an annuity from a completely new one.

    If you are thinking about transferring to increase the control you have over your pension or to bring them together in to one pot, it is important to ensure that this represents good value for money and that the underlying investments are appropriate. A financial adviser can help you understand your options and provide their advice.

    If your pension benefits from guaranteed growth rates, a financial adviser could help you understand the growth rate required to meet your requirements during requirement via a cashflow forecast. You could work with your financial adviser to understand whether losing such a guarantee is needed. You may be able to meet your objectives just fine as things stand.

    One reason that individuals often switch their pensions to a new provider is due to the death benefits. Some legacy pension providers would provide a full fund pay out upon death. Pensions do not normally form part of your estate and therefore this scenario may be of consequence to your family.

    If your pension has protected tax free cash, your pension provider will ask you to complete a questionnaire which will enable them to determine the level of protected tax free that is available. This could range considerably.

    You should also remember that it can often take time to transfer a pension and whilst the transfer is taking place, your pension isn’t invested so you could potentially be losing out on any fund rises taking place during this time.

    Summary

    Sometimes it can make perfect financial sense to transfer your pension but only if the positives outweigh the negatives when you take every factor into account. Sometimes it may make perfect sense to leave your pension where it is and simply review the underlying investments held within your current contract. The best way to ensure everything has been covered is to seek expert financial advice at the outset.

    Our specialist financial planning team can look at your current pension and advise on whether looking to transfer would be a sensible option based on your personal circumstances. For further information or advice, contact a member of our financial planning team today by emailing enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.  

    As a director or business owner, are you aware of all your pension options?

    Posted on by Katie Heaton

    Although most are fully aware of the more traditional personal pension options, as a director or business owner, there could be further options to consider for maximising your retirement savings. Two options which are often considered are a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS).

    Self-Invested Personal Pension

    A Self-Invested Personal Pension (SIPP) gives you the ability to invest in a wider range of investment options (within the rules of the SIPP provider). Your pension can be used to invest in stocks and shares, invest in collective investments as well as commercial property.

    A business owner is also able to purchase their business premises within their SIPP and then rent it back. This option gives you greater control over your future, unlocks higher potential returns than standard savings accounts, and may benefit from tax reliefs.

    Small Self-Administered Scheme

    A Small Self-Administered Scheme provides all of the investment avenues and potential benefits of a SIPP but there are a few differences.

    With a SSAS you and up to 10 others can also provide a loan facility back to your company. With a SSAS assets are pooled and members hold a proportionate percentage based upon their contributions or assets transferred into the pension.

    The benefits of the SSAS are three-fold: as well as establishing a diversified investment portfolio, you are also able to provide affordable financing for your business, which can help with day-to-day running costs or even help accelerate growth. Also, the sponsoring employer can pay the SSAS fees.

    Summary

    As with any investments, the level of return is never guaranteed, and it is essential to seek advice based on your individual circumstances to ensure any decisions you make are in your best interest. The complex nature of both the above pension structures and the rules that must be carefully followed mean that they are not always suitable for everyone.

    For further information on the above pension options or for more general financial advice, get in touch with a member of our financial planning team today by emailing enquiries@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    How much will I need for retirement?

    Posted on by Rebecca Campbell

    Common questions we are asked as financial advisers are “Will I have enough money when I retire?” and “How much is enough for retirement?” – there is no ‘one size fits all’ solution when it comes to retirement planning, and we could have different answers for every individual based on their circumstances.

    Research from the Pensions and Lifetime Savings Association (PLSA) highlights that 77% of pension savers are unaware of how much they will need in retirement, which is why the Retirement Living Standards have been developed – painting a picture of the lifestyle you could have in retirement. According to the Standards, £20,800 per year will be enough for a single person to live on for a ‘moderate lifestyle’, or £33,600 for a ‘comfortable lifestyle’, and for couples, it is £30,600 and £49,700 respectively, but what does this mean for you, and how can you ensure you will have enough to sustain the lifestyle you require?

    When planning for retirement, it is important to consider seeking support and guidance from an experienced financial adviser.

    Typically, your adviser will work with you to establish a clear understanding of what income will be required to support your proposed retirement, when you plan to retire and what assets are already in place. With this information, advisers can build a cashflow model, using sensible assumptions, to work backwards and highlight what you should be saving. This clarity is often enough to spark the appetite for an individual to begin implementing a clear financial plan for retirement.