Pensions
“It would be foolish to think that we will all arrive at our pension age. But it is more foolish to not plan for that event, should we be fortunate enough to arrive there!
At our Petersfield office, we have a wealth of experience and expertise in arranging pensions, both in investing for the future and reviewing the plethora of options available at and into retirement.
There have been many changes in pensions’ legislation down the years and making new contributions can impact upon your existing arrangements – not always in a good way. We will help you make the choices that will allow you to enjoy your retirement, or leave a healthy legacy for your heirs should the unthinkable happen.”
Personal Pension
There are many ways in which you can invest for your retirement, but if you are employed or self-employed, you can obtain income tax relief on contributions to a Personal Pension plan.
There are a few exceptions, but if you are employed your employer is bound by law to provide a workplace pension for you and there are certain minimum contributions that both you and your employer must make.
If you want to pay more than the minimum required by law, you can either ask to pay more through your employer’s scheme or you can start your own plan separately. You are allowed to “opt out” of your employer’s scheme, but you should consider doing so very carefully, as you will be giving up valuable benefits.
If you start a separate plan there will usually be additional costs involved, but it is not just about cost. Having your own separate personal plan could offer you more flexibility in the way you contribute; it is also a little more personal and private and should offer you more investment options. If you already have a large pension pot, you can also “Self- Invest”, buying investments that are not the insured pension funds of the pension plan provider, real commercial property, etc.
If you are self-employed you can start your own Personal Pension or if you want to invest in more tangible assets, your own Self-Invested Plan.
Self-investment is a complex area however, so you should take professional guidance on the cost / risk / rewards.
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Workplace pensions
As an employer you are bound by law to run a pension savings scheme of some kind for your employees; there are exceptions, but they are few and the penalties for not having a qualifying scheme available can be severe.
There are minimum contribution levels that both you and your employees must make to these plans. Although your employees are allowed to “opt out” from the scheme, if they do so you must re-offer the scheme to them every so often.
Government schemes are available for this, but they are a “one size fits all: no-one well” and we believe your scheme should be just that: a scheme tailored to suit your particular circumstances.
As independent Financial Advisers we have access to all the schemes that are available to you and are bound to offer you the best scheme for your particular circumstances.
Structuring a scheme with differing levels of contributions, rewarding long service or particular promotion grades, can also be an invaluable way of attracting and retaining staff. You can also provide add on benefits, such as sick pay and death in service and Private Medical Insurance to all or just key staff.
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A Directors Scheme
You can of course use your company’s Workplace pension as a way of saving for your retirement. But will it offer you a wide enough investment choice, especially if you wish to make one off contributions from time to time?
You might wish to simply set up a Personal Pension plan that offers many more investment options for you and or your co-directors.
Alternatively, a Self-invested Personal Pension allows you to buy investments other than the insured funds of Personal Pension providers.
You could therefore set up a separate scheme for yourself, or for you and your co-Directors, that offers a wider choice of investment opportunities. Once you have accumulated, or if you already have, a reasonable sized pension investment pot, a Self-Invested Pension offers you an opportunity to put the capital you have accumulated to good use, by using it to buy the property from which your business runs – or another commercial property as a separate investment.
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I am about to retire or have already retired
Having saved hard, you now have to structure your income from the accumulated fund so that you can enjoy your retirement.
An annuity is one option. Having saved month by month to build up your pension fund, to buy an annuity you now sell the fund to an insurer in return for a guaranteed income for life, however long that might be. It is a powerful argument and if you are naturally very cautious or have a small fund, it might be the best option for you.
But annuities generally require that you make certain decisions at outset – you are “buying” a secure income.
The simplest and cheapest – the one that will give you the most each month / year, is a single life, level annuity. It will not change year on year and dies with you.
But you can arrange for the income to continue after your death, at the same or a reduced rate, so that your partner can benefit from it. But if your partner pre-deceases you, you might feel that the cost of securing that income has been waste
Should your pension increase annually? You might live for many years and so benefit from having your income increase year on year. On the other hand, if you have an increasing income, the starting level will be lower and if you die too soon, you might again have lost out.
If you are lucky enough to have an older style personal pension, one that guarantees you a minimum conversion factor, if you have a partner they get “current rates” and this can have a big impact on what you and they might receive.
Buying an annuity is a one way street; once it is bought there is no easy away of going back.
Pension fund withdrawal is not for everyone, and it involves a degree of risk. But if you can secure your income in an alternative way, by leaving your money fully invested and drawing income from it, it can work well for you from the perspectives of tax efficacy and flexibility.
One of the reasons drawdown works, is that you do not have to make a decision about buying guarantees, or an increasing or dependent’s income.
Taking a sensible level of withdrawal and careful structuring of your investment portfolio can minimise those risks, hopefully to the point that you can tolerate the vagaries of the world’s stock markets, so long as your personal circumstances permit.
You can decide to buy an annuity later, if it becomes appropriate. If you die before you have spent the whole pot, you’ll also have something to leave to your heirs.