Your retirement is an important part of life and Pension planning is therefore critical. As everyone is different, we can give you advice on your specific circumstances, so please get in touch.
The Value of Retirement Planning
The benefits of planning for retirement are well known, yet many of us do not plan well or early enough. Despite government initiatives and headlines in the media, we do have a tendency to put it off until ‘tomorrow’, which is worrying as we tend to live longer than many of us believe.
Facing retirement in today’s world produces many additional challenges, and opportunities, that would not have been present a generation ago. Today we have access to many more ways to fund our retirement, making the process even trickier to prepare for.
Workplace pension schemes are compulsory for most Employers and employees these days. Although most of the more traditional “final salary” schemes popular in previous years have now closed, since 2015 it has been compulsory for employers with more than 1 employee to open a workplace pension scheme and for the employer and employee to pay a minimum contribution, unless the employee opts-out. These schemes are in the main, fairly basic, offering a low cost way to save for retirement, usually in a default investment fund.
Workplace Pensions are regulated by The Pensions Regulator
Personal pensions are worth considering if either you’re employed but not in a company pension scheme or supplementary to a company scheme. They are also worth considering if you are self-employed or even not working but can afford to set aside some funds for your retirement.
A regular amount is paid either monthly or annually, or indeed a lump sum can be paid into a personal pension to a provider who invests it on your behalf. Funds are typically managed by financial organisations such as insurers, unit trust companies and banks. They will charge you a set-up fee and an ongoing fee, typically deducted from the fund as a management charge.
The final value of a pension depends on how well the invested funds have performed and of course how much has been invested over the course of the scheme.
Annuities are essentially a pension guaranteed for life. You pay a lump sum to the annuity provider, usually from a pension plan and in return they guarantee to pay a set amount to you until you die. There are various flexible options available including, spouse’s pension on death, increasing pensions and guaranteed payment terms however, these would reduce the amount of the pension. If you suffer from health issues which could impact your life expectancy, you might qualify for an “enhanced” annuity.
Income Drawdown offers a more flexible approach to the more traditional annuity schemes as they tend to give you more control coupled with greater choice.
If you opt for income drawdown from a pension plan, your money stays invested in the pension fund(s) and you can choose to draw an income of any amount.
They tend to suit clients who are less risk averse with their investments, typically with larger pension funds. There is no guarantee however that the income generated will be more than if the fund was used for an annuity purchase upon retirement, neither is there any guarantee that the initial income levels will be maintained. The costs of income drawdown tend to be higher than those of an annuity.
Income Drawdown schemes are complicated so it’s judicious to seek professional advice on your own particular circumstances, as decisions made now will affect the future of your pension income.
A pension is a long-term investment not normally accessible until 55. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
This article is intended to provide a general appreciation of the topic and it is not advice.