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A Guide To Retirement Planning Spreads
 

A Guide To Retirement Planning Spreads

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    A Guide To Retirement Planning Spreads A Guide To Retirement Planning Spreads Document Transcript

    • A Guide toRetirementPlanningDeveloping strategies to accumulate wealthin order for you to enjoy your retirement years
    • Welcome CONTENTS Contents 04 Expected retirement incomes 16 Is it time to get more flexible with hit five-year low your money? A Guide to Taking some practical steps now could Remove the cap on the retirement mean a more comfortable retirement income you can take Retirement Planning 06 Different types of occupational pensions Most employers are required to offer 17 Self-Invested Personal Pensions Taking more control over your their employees the chance to join a pension fund investment decisions Welcome to ‘A Guide to Retirement Planning’. The State Pension alone pension scheme won’t be enough to ensure a comfortable retirement so it’s worth reviewing your options as soon as you can to make sure you can afford 08 Enrolling workers into 18 Helping you maximise your retirement income life’s little pleasures once you retire. a workplace pension Why your annuity will have to last When it comes to planning for retirement, time is your friend. A good Saving for your retirement arranged you for longer retirement investment strategy starts with a longer-term approach. This through your employer usually begins with more adventurous investing to build growth and then moves into less risky options to safeguard that growth as the planning 10 Tax relief on pension 20 Getting the best annuity nears its end. contributions How to substantially increase your Ideally saving should start as early as you can. However it’s never too Encouraging people to invest more pension income late to start and the earlier you start the greater the benefits. People don’t towards their retirement start out planning to fail, but many do fail to plan. Retirement is something we all look forward to and, even if it seems a long way off, the crucial question is ‘Do you have enough saved for a Want to discover what the future 12 Saving for your retirement 21 Tracing a personal or occupational pension scheme comfortable retirement?’ will look like? The sooner you start saving for your It can be easy to lose track of a Wherever you are with your retirement savings, don’t be put off from retirement the more secure your pension if you change jobs through taking action – there are still steps you could take to increase the income Even if your retirement planning is up future will be your working life you’ll get when you retire. and running, that’s not the end of the 22 story. It’s important that you review We can work with you to develop strategies to accumulate wealth in order for you to enjoy your retirement years, by evaluating your goals, your contributions, particularly if you have a change of circumstances. If 13 Personal pension plans Providing retirement benefits based on Pension consolidation Bringing your pensions under personal circumstances and projected living costs. the accumulation of a ‘pot’ of money one roof you don’t know how your planning is doing, you can’t know what your Set clear goals for your retirement Take control of your existing retirement savings Maximise future will look like. To discuss how we could help you plan for your 14 Changes to State Pension age your use of generous tax allowances Tailor an Helping to manage the cost of investment strategy appropriate to your needs retirement, please contact us for State Pensions because of increasing Maximise your post-tax income in retirement further information. life expectancy Adapt to changing circumstances02 A Guide to Retirement Planning A Guide to Retirement Planning 03
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING By taking some practical steps now, workers and imminent retirees could ensure a more comfortable retirement. For those who are still working, it has never been a more important time to save into a pension.Expected retirementincomes hit five-year lowTaking some practical steps now could mean a more comfortable retirementPeople retiring in 2012 expect to live on financially comfortable compared It is concerning that expectedan average annual income of £15,500 – with 31 per cent of women. However, retirement incomes are going down,over £1,000 a year less (6 per cent) than nearly one in five (18 per cent) of those while pensioner expenditure is going up.those who retired in 2011. The figures planning to retire in 2012 have no idea However, by taking some practical stepscome from Prudential’s unique Class of of the level of income they will need in now, workers and imminent retirees2012 research, which provides insights order to live comfortably. could ensure a more comfortableinto the financial expectations of Britons retirement. For those who are stillplanning to retire in the next 12 months. As a sign of the working, it has never been a more ongoing financial important time to save into a pension.Expected annual challenges facing thoseretirement incomes However, even if you are due toThe results of Prudential’s annual survey, due to retire in 2012, one retire this year, you could still makefirst carried out in 2008, show that in five will get by on an your retirement funds generateexpected annual retirement incomes expected annual income better incomes.have dropped by more than 16 per cent of less than £10,000.in the last five years. The Class of 2008retirees looked forward to a total annual Fewer than two in five Need ideas about savingincome, including private, company (37 per cent) of the Class for your retirement?and State pensions, of approximately of 2012 say that they£18,600 – £3,100 a year more than those To discuss how we could help you to make have saved enough to more informed pension saving and retirementplanning to retire this year. secure a comfortable income decisions, please contact us.As a sign of the ongoing financial retirement.challenges facing those due to retirein 2012, one in five will get by on an Source – Online survey conducted byexpected annual income of less than Research Plus on behalf of Prudential£10,000. Fewer than two in five (37 The perfect storm between 2 and 12 December 2011per cent) of the Class of 2012 say that The current economic climate has among 9,614 UK non-retired adultsthey have saved enough to secure a created the perfect storm for people in aged 45+, including 1,003 retiring incomfortable retirement. the run-up to retirement. The impact 2012. All retirement income figures of the credit crunch, banking crisis, within this release are rounded to theGender difference recession and concerns over the nearest hundred.Men are more optimistic about their Eurozone has been reflected in the factretirement than women, with 45 per that expected retirement income levelscent of men confident they will be have hit a five-year low.04 A Guide to Retirement Planning A Guide to Retirement Planning 05
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING One of the ways in which you can top up your occupational pension scheme is by paying into an AVC run by your employer, if they offer this option.Different types ofoccupational pensionsMost employers are required to offer their employeesthe chance to join a pension schemeThere are different types and reduced administration costs. Your Types of AVC include:of occupational pensions employer doesn’t have to contributethat are available. towards the scheme, but might agree Added years AVC to do so. This only applies to final salary (definedTypes of benefit) schemes. Contributions areoccupational pension Pension contributions made by you used to buy ‘added years’ to increaseFinal salary (defined benefit) schemes and, your employer, go into the fund the number of years of service in yourThese are also known as defined benefit each month. When you retire you can main scheme.schemes as they guarantee a set level of take a tax-free lump sum from the fundpension when you retire. Your pension and use the rest to buy an annuity, In-house AVCis based on an annual multiple of your which will provide a regular income for This is run through your employer’spay and length of time in the scheme – the rest of your life. occupational scheme. Your employertypically one-60th of your final salary bears the administrative costs, meaningfor every year of service. You should be able to consolidate your that topping up this way is likely to be money purchase pension plan to a new cheaper for you than topping up yourFinal salary schemes are expensive employer’s scheme, and should always pension by other means.and risky for the employer, who has to obtain professional advice to see if thisinvest to fund the sums promised to is the best option for you. Matched AVCseach employer. They are gradually being These apply to defined contribution/replaced by money purchase plans, Stakeholder money purchase schemes. The majorwhich hold more risk for the employee. pension schemes incentive to buy matched AVCs is that If your employer has five or more the employer will match the employee’sMoney purchase (defined employees, and doesn’t offer an contribution to a defined level, forcontribution) schemes occupational or group pension plan to example; an employer could pay 1 perContributions are normally made by which they contribute at least 3 per cent for every 1 per cent an employeeyou and your employer. The size of your cent of your pay, they must offer a pays, up to a specified maximum.pension pot will depend on how much workplace stakeholder scheme. Yourhas been contributed, the performance employer doesn’t have to contribute, Bolt-in schemesof the underlying investment funds and but may agree to do so. In-house schemes in which employeeshow long it’s been invested. bear the administrative cost. Additional VoluntaryGroup personal Contributions (AVCs) Money purchase AVCpension plans One of the ways in which you can top You make the contributions that buildAn employer sets up a number of up your occupational pension scheme up your pension fund and bear thepersonal pensions for employees, in is by paying into an AVC run by your administrative costs. Your employerorder to achieve economies of scale employer, if they offer this option. may agree to match your contributions.06 A Guide to Retirement Planning A Guide to Retirement Planning 07
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGEnrolling workers intoa workplace pension scheme, you may be entitled to your employer’s contribution. Your employer will let you know if this is the case. your earnings. Your employer will let you know what these are. The government has set minimum amounts for defined These minimum percentages do not apply to all of your salary. They apply to what you earn over aSaving for your retirement arranged through your employer contribution pension schemes. minimum amount (currently £5,035) What employers can up to a maximum limit (currentlyStarting from October 2012, some when you retire, you may want to consider employers will follow sometime after this, choose to do Minimum that has to be £33,540). This is sometimes calledemployers will have to enrol workers contributing to a workplace pension. over several years. Your employer will give Employers are allowed to delay the date contributed in total ‘qualifying earnings.’into a workplace pension, if they meet The full basic State Pension in 2012/13 is you the exact date nearer the time. they enrol you into a pension, by up to The government has set a minimumcertain criteria. £107.45 per week for a single person. three months from the deadline given to percentage that has to be contributed So for example, for someone who If you’re being automatically enrolled, them by the government. into your workplace pension in total. It earns £18,000 a year, the minimumWorkplace The government is getting employers to your employer must let you know in is made up of your contribution, your percentages are calculated on thepension – what it is? enrol their workers automatically into writing: If the pension is a defined benefit or employer’s contribution and the tax difference between £18,000 and £5,035,A workplace pension is a way of saving a workplace pension so it’s easier for hybrid pension scheme, and you have relief, added together. The minimum will which is £12,965.for your retirement arranged through people to start saving. n  he date of your enrolment T an existing right to join your employer’s start at two per cent and increase toyour employer. n  he pension scheme you will be T pension, your employer can delay eight per cent over the next few years. Contribute more Benefits of staying in a enrolled into enrolling you for several years. than the minimumHow this could affect you workplace pension n  ow much will go into your pension H Minimum that has to Your employer can choose to pay moreYour employer will enrol you into a A pension is a way of saving money to (as a percentage of your salary or as If your employer does delay, they have be contributed by into your workplace pension than theworkplace pension if you: provide you with an income when you an amount) to let you know in writing. If you want your employer minimum required. If so, you can choose retire. There are many benefits to having n  ow you can opt out of the pension, H to join your workplace pension in the As part of the overall percentage, the to reduce your own contribution. Butn A  re not already in a pension at work a pension at work. if you want to meantime, your employer must accept government has also set a minimum the overall contribution must still meetn A  re aged 22 or over your request. percentage that has to be contributed at least the minimum level set by then A  re under State Pension age Your employer will pay into it. This Your employer must also: by your employer. This will start at one government. You can also choose ton Earn more than £7,475.00 a year contribution from your employer Salary sacrifice per cent and increase to three per cent increase your contribution.n W  ork in the UK means your pension can build up more n  ccept your request to join their A Employers can use ‘salary sacrifice’. over the next few years. quickly than if you were saving for your workplace pension, if you have This is an arrangement that must beYour employer will write to you to retirement on your own. previously opted out or stopped agreed between you and your employer.explain how the changes affect you. You paying - your employer must accept You give up part of your pay and yourcan choose to opt out of this pension, The government will also pay into it, in your request once in a 12 month employer pays this amount into yourif you want to. But if you stay in you’ll the form of tax relief. This means some period but can choose to accept pension pot instead. It is also known ashave your own pension, which you of the money you earn, instead of going further requests if they want to ‘salary exchange’ or ‘SMART scheme.’get when you retire. If you’re already to the government as income tax, now n Enrol you back into the pension atin a pension at work and it meets the goes into your pension instead. regular intervals (usually every three What employers can’t dogovernment’s new standards, this will years), if you meet the eligibility criterianot affect you. Your workplace pension belongs to and aren’t in a workplace pension The new law states certain things you, even if you leave your employer n  ay your full contributions on time, to P employers cannot do. The employer can’t:When this is happening in the future. As your employer will whoever runs your pension schemeWhen you will be enrolled depends on automatically enrol you into this pension, n Offer incentives to workers to opt outthe size of the organisation you work it’s a simple way of saving while you earn. If you’re already in a workplace of their workplace pension for. Very large employers are doing it pension, your employer must confirm n Offer incentives to workers duringfirst, in late 2012 and early 2013. Other Being in a workplace pension is an in writing that the pension meets the recruitment or imply that a workeremployers will follow sometime after this, important step towards giving yourself government’s new standards. can only be employed if they opt outover several years. Your employer will the lifestyle you would like in later life. of their workplace pension give you the exact date nearer the time. If you’re not being enrolled and you’re n Unfairly dismiss a worker because What employers not already in a workplace pension, they stay in their workplace pensionWhy this is happening must do by law your employer must:People are living longer. You could be Your employer must let you know in writing Minimum amount thatretired for twenty years and you need to if you’re being enrolled into a workplace n Explain in writing that you have a has to be paid in to yourthink about how you’ll fund it. pension or not. When you’ll be enrolled right to join a workplace pension  workplace pension depends on the size of the organisation you n Explain to you how you can join The amounts paid in by you, yourThe State Pension is a foundation for your work for. Very large employers are doing employer and the government (tax relief),retirement. But if you want to have more it first, in late 2012 and early 2013. Other If you ask your employer to join a pension are usually calculated as a percentage of08 A Guide to Retirement Planning A Guide to Retirement Planning 09
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGT relief on axpension contributionsEncouraging people to invest more towards their retirement they’ve got no income, you can pay in is not applicable in the tax year that up to £2,880 a year - which becomes retirement benefits are drawn.The aim of tax relief is to encourage basic rate tax payer puts into a pension 1988 - don’t offer a ‘relief at source’ £3,600 with tax relief.people to invest more towards their scheme, the government pays £20. scheme whereby they claim back tax Other pensionretirement and rely less on the state for at the basic rate. Instead you’ll need to If the pension scheme rules allow it you tax advantagesincome after they stop working. Those Even those who don’t pay tax but are claim the tax relief you’re due through may also be able to put money into The pension fund doesn’t paywho receive below a certain threshold still contributing to a pension (maybe your tax return, or if you don’t complete someone else’s occupational or public tax on any capital gains orin pension income – currently £137.35 because their partner is providing the a tax return by telephoning or writing to service scheme. You’ll not get tax relief investment income.if you are single or £209.70 if you have money) can still receive tax relief at 20 HM Revenue & Customs (HMRC). on your contribution but the other persona partner – receive a top up through a per cent on contributions up to £2,880 can get relief either through their tax Also, when your pension maturesmeans-tested benefit called pension a year: the government tops this amount Effect of pension return or by making a claim to HMRC. you can take up to 25 per cent of itcredit. The more people that save for up to a total of £3,600. contributions on age- as a tax-free lump sum, provided yourthemselves, the fewer who will need to related allowances Limits on tax relief pension scheme rules allow it, and yourclaim pension credit. If you are a higher rate tax payer, you If you receive an age-related Personal You can save as much as you like into total savings are within the ‘Lifetime can claim additional tax relief through Allowance or Married Couple’s any number and type of registered Allowance’ for the year in which you takeHow tax relief on pension your Self assessment return. The relief Allowance HMRC will subtract the pension schemes and receive tax relief your benefit.contributions works ranges from 1 per cent to 20 per cent amount you contribute plus the basic on contributions of up to 100 per cent ofThe way you receive tax relief on pension more, depending on how much you earn rate tax from your total income and use your earnings (salary and other earned For 2012/13, the Lifetime Allowancecontributions depends on whether you above the higher rate tax band and how the reduced figure to work out the value income) each year, provided you paid the for pension savings for individuals waspay into an occupational, public service much you contribute to your pension. If of your allowances. This may have the contribution before age 75. reduced to £1.5 million. The Lifetimeor personal pension scheme. some of your contribution comes from effect of increasing these allowances Allowance is the maximum amount of earnings that have been taxed at 40 per if your income was above the relevant But the amount you save each year pension and/or lump sum that you can getOccupational or public cent, then you will get 40 per cent tax ‘income limit’ that applies. toward a pension from which you from your pension schemes that benefitservice pension schemes relief. But if some comes from the 20 benefit from tax relief is subject to an from tax relief.Usually your employer takes the per cent tax band, you will get the lower What happens ‘Annual Allowance.’pension contributions from your pay rate of relief on that part. if you don’t pay tax? There is no limit on the amount ofbefore deducting tax (but not National If you don’t pay tax you can still pay into Annual Allowance benefits that your pension scheme canInsurance contributions). You only pay Likewise, the highest rate taxpayers who a personal pension scheme and benefit For money purchase schemes, it’s the pay you. However, if your pension schemetax on what’s left. So whether you pay pay 50 per cent income tax on the top from basic rate tax relief (20 per cent) limit on how much can be paid by in total gives you benefits of more than yourtax at basic, higher or additional rate you slice of their earnings – anything over on the first £2,880 a year you put in. by you and your employer in a tax year Lifetime Allowance you will pay an extrareceive the full relief straightaway. £150,000 – can benefit from between 1 per In practice this means that if you pay tax charge on the amount over your cent and 30 per cent additional tax relief. £2,880 the government will top up your For final salary and career Lifetime Allowance. This tax charge isIf you’re a GP or dentist and contribute contribution to make it £3,600. average schemes, the limit is on the value called the Lifetime Allowance charge.to a public service scheme you are You can put 100 per cent of your annual of the increase in your pension built up intaxed as self-employed for part of earnings in a pension if you can afford There is no tax relief a tax year When your pensionyour earnings so should claim tax relief it, and will receive tax relief on up to for contributions above matures you can take upthrough your Self assessment tax return. £50,000 of contributions in the current this amount The Annual Allowance tax year, meaning someone earning Tax relief if you put money into someone for the tax year to 25 per cent of it as a tax-Personal pension plans £200,000 would receive £25,000 from else’s pension scheme 2012/13 is £50,000.  free lump sum, provided yourEvery pound you pay into a private the government towards their pension. Contributions paid in excess of the pension scheme rules allowpersonal pension scheme is matched You can put money into someone allowance or the value of pensions that it, and your total savings arewith tax relief by the government – Retirement annuities else’s personal pension - like your accrue in excess of the allowance giveeffectively any Income Tax you have paid Unlike personal pension providers, most husband, wife, civil partner, child or rise to a tax charge at the individual’s within the ‘Lifetime Allowance’on that pound is paid into your pension retirement annuity providers - personal grandchild’s. They’ll get tax relief own marginal rate. for the year in which youfund. This means that for every £80 a pension schemes set up before July won’t affect your own tax bill. If For each scheme, the Annual Allowance take your benefit.10 A Guide to Retirement Planning A Guide to Retirement Planning 11
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING Personal pension plans Providing retirement benefits based on the accumulation of a ‘pot’ of moneySaving for A personal pension plan is a type fund can be used to buy an annuity with of defined contribution arrangement. an insurance company. This scheme provides retirement benefits based on the accumulation of Would a personal pension a ‘pot’ of money, accumulated through plan be good for you?your retirement the investment of contributions paid by Your decision will largely depend on both the employee and the employer. how much you can afford to save for It is essentially an investment policy your pension and how much you will that provides an income in retirement. get from other pensions. It is available to any UK resident who is under 75 years of age. Personal pension plans may be suitable for:The sooner you start saving for your retirement The policyholder contributes to the plan, n  eople who are self-employed Pthe more secure your future will be the money is invested and a fund is built up. n  eople who are not working but can P afford to pay for a pensionSaving for your retirement may not seem For women born after 5 April 1950 but The amount of pension payable when the n Employees whose employer does notimportant when you’re starting out. But the before 6 December 1953, their State Pension policyholder retires is dependent upon: offer an occupational pension schemesooner you start saving for your retirement age is between 60 and 65. n Employees who have the option tothe more secure your future will be. n  he amount of money paid T pay into an occupational pension, but Increase in State into the scheme choose not toHaving a personal or Pension age to 66 n  ow well the investment H n Employees on a moderate incomeoccupational pension Under the Pensions Act 2011 women’s State funds perform who wish to top up the moneyThe sooner you start putting money into Pension age will increase more quickly to n  he ‘annuity rate’ at the date of T they would get from an Saving for youryour own personal or occupational pension, 65 between April 2016 and November 2018. retirement (an annuity rate is the occupational pensionthe more time you have for it to build up. From December 2018 the State Pension retirement may factor used to convert the ‘pot of age for both men and women will start to not seem important money’ into a pension) A personal pension plan mayWhen planning your retirement there are increase to reach 66 in October 2020. when you’re starting not be the best choice if:three main types of pension you need to The policyholder can retire at n Your employer offers an occupational out. But the sooner youconsider. These are State Pensions, personal These changes affect you if you’re: any age after 55 (subject to plan pension schemepensions and occupational pensions. start saving for your restrictions). When the policyholder does n Your employer offers access to a n  woman born on or after 6 April 1953  A retirement the more retire, they can generally take up to 25 stakeholder pension scheme,State Pension n  man born on or after 6 December 1953 A secure your future per cent of the value of their fund as a with an employer contributionThe Sate Pension is paid to those who are tax-free lump sum. The remainder of the will be.eligible, over State Pension age and who The current law already provides for thehave claimed it. You may be eligible for the State Pension age to increase to:following types of State Pension: There are a number of rules that can n  7 between 2034 and 2036   6 influence your retirement planning. ToBasic State Pension  n  8 between 2044 and 2046 6 discover how we could help you saveAdditional State Pension for your retirement please contact usFor men born before 6 December 1953, the for further information.current State Pension age is 65.12 A Guide to Retirement Planning A Guide to Retirement Planning 13
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGChanges to How much is the basic State Pension? The following table gives a simple overview of the maximum basic State Pension you may receive.State Pension age Circumstances Basic State Pension  rate per week, for 2012/13 Single man or woman £107.45 Married man or woman or civil partner £107.45Helping to manage the cost of State Pensions (who qualify with their own National Insurance contributions)because of increasing life expectancy Married man, woman or civil partner £64.40 (using his wife’s, her husband’s or theirIn his Autumn Statement, on Under the announcement these people In 2012/13, you need to have £5,564 or civil partner’s National Insurance29 November 2011, the Chancellor of the will now have a State Pension age of 67. more of such earnings if: contributions record)Exchequer, George Osborne announcedthat the State Pension age will now Changes to State Pension n You’re an employeeincrease to 67 between 2026 and 2028. age beyond 67 n You’re paying National Date of birth Approximate State Pension ageThe government said it took this decision State Pension age is planned to start to Insurance Contributions as a 6 April 1960 to 5 May 1960 66 years and 1 monthbecause of increasing life expectancy, to increase to 68 from 2044 and this would self-employed person 6 May 1960 to 5 June 1960 66 years and 2 monthshelp manage the cost of State Pensions. If affect anyone born after 5 April 1977. 6 June 1960 to 5 July 1960 66 years and 3 monthsyou were born in the 1960s, find out how How many qualifying 6 July 1960 to 5 August 1960 66 years and 4 monthsyou could be affected. The government is considering how the State years do you need? 6 August 1960 to 5 September 1960 66 years and 5 months Pension age could better reflect changes in 6 September 1960 to 5 October 1960 66 years and 6 monthsUnder current legislation, State Pension life expectancy in the future. This is likely to n  he number of qualifying years you T 6 October 1960 to 5 November 1960 66 years and 7 monthsage is planned to increase to: mean that the existing timetable to increase need for a full basic State Pension 6 November 1960 to 5 December 1960 66 years and 8 months State Pension age to 68 will be revised. depends on your age and whether 6 December 1960 to 5 January 1961 66 years and 9 monthsn  6 between November 2018 and 6 you’re a man or a woman 6 January 1961 to 5 February 1961 66 years and 10 months October 2020 Basic State Pension n Men born before 6 April 1945 usually 6 February 1961 to 5 March 1961 66 years and 11 monthsn  7 between 2034 and 2036 6 - what is it? need 44 qualifying years 6 March 1961 to 5 April 1969 67 yearsn  8 between 2044 and 2046 6 Anyone who has enough qualifying n  omen born before 6 April 1950 W years from their National Insurance (NI) usually need 39 qualifying yearsThe government has announced that the contributions record is entitled to some n Men born on or after 6 April 1945 need n Looking after children under 12 years When entitlement to the additional If you were contracted out through oneincrease to 67 will now take place between basic State Pension. You can receive 30 qualifying years old and claiming Child Benefit  pension is calculated, the earnings on of these schemes on 6 April 2012, you2026 and 2028. a basic State Pension based on the n  omen born on or after 6 April 1950 W n Caring for a sick or disabled person which it is based are revalued in line with will have automatically been brought qualifying years of National Insurance need 30 qualifying years for more than 20 hours a week and the growth in average earnings. back into the additional State Pension.This change to the timetable is not yet law contributions (NICs) you have. claiming Carer’s Credit  You’ll have commenced building upand will require the approval of Parliament. Additional State Pension n  registered foster carer and claiming A Contracting out the additional State Pension from this time. When can you get a basic An additional State Pension can give you Carer’s Credit additional State PensionWho is affected by State Pension? extra money on top of your basic State n  eceiving certain other benefits due to R If you’re an employee with annual If you are alreadythe announcement? State Pension age is the earliest you Pension. It is also sometimes called the illness or disability earnings above a certain amount (£5,564 contracted outThis will mean that people born after 5 can get a basic State Pension. You have State Second Pension (it used to be called in 2012/13) - you may be able to choose If you are already contracted out throughApril 1961 but before 6 April 1969 will have to claim it. You can also choose to put the State Earnings Related Pension Scheme If you’re employed and have a pension to leave the additional State Pension. either type of scheme, you will:a State Pension age of 67. off claiming (defer) and take your State (SERPS)). You may be entitled to additional then you may be ‘contracted out’ Pension later. If you choose to defer you State Pension if you’re employed, looking of the additional State Pension. Changes to contracted Be able to continue to make your ownPeople born after 5 April 1960 but before could receive an extra State Pension or a after a child or caring for someone. This means you’re unlikely to be out pensions from 2012 contributions to the scheme 6 April 1961 will reach State Pension age lump-sum payment as well as your State contributing towards the additional The rules for contracting out of the Be able to continue to benefit from anybetween 66 and 67 as shown in the table. Pension when you do claim. Who gets the additional State Pension. additional State Pension changed on 6 April employer contributions to the scheme  State Pension? 2012. The changes mean that contracting No longer be able to benefit from anyUnder the Pensions Act 2007, people born Will you get a basic You may be contributing to or receiving SERPS and the out will not be possible through: rebate of National Insurance contributionsafter 5 April 1969 but before 6 April 1977 State Pension? credits towards the additional State State Second Pensionalready have a State Pension age of 67. You can get a basic State Pension by Pension if you’re below State Pension age The additional State Pension has gone n  money-purchase (defined- A Contracting out through an occupational paying or being credited with enough and you’re: under different names in the past. You contribution) occupational salary-related (defined-benefit) schemeFor people born after 5 April 1968 but National Insurance contributions (NICs) used to receive additional State Pension pension scheme will still be allowed. However, contractingbefore 6 April 1969, their State Pension towards qualifying years before State n Employed and earning over £5,564 In through the State Earnings-Related n  personal pension or a A out for these schemes will be reviewed inage would have been between 66 and 67. Pension age. 2012/13 (from any one job)  Pension Scheme (SERPS). stakeholder pension the future.14 A Guide to Retirement Planning A Guide to Retirement Planning 15
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGIs it time to get more Self-Investedflexible with your money?Remove the cap on the retirement income you can take Personal Pensions Taking more control over your pension fund investment decisionsPension legislation is always on the move method of accessing their pension Pension contract If you would like to have more control over Thousands of funds in commercial property, you may also haveand keeping up to date with the latest income, some will want to take advantage Depending on your circumstances, your own pension fund and be able to You can typically choose from thousands periods without rental income and, in somechanges could open up new opportunities of these enhanced drawdown facilities. all these changes may well sound like make investment decisions yourself with of funds run by top managers as well as cases, the pension fund may need to sellfor you in retirement. On 6 April 2011, good news, but there’s one important the option of our professional help, a Self- pick individual shares, bonds, gilts, unit on the property when the market is not atthe government announced that you no Flexible drawdown could, for example, be thing to be aware of. Just because the Invested Personal Pension (SIPP) could be trusts, investment trusts, exchange traded its strongest. Because there may be manylonger have to take pension benefits by used to meet one-off large expenditure rules about when and how you take the retirement planning solution to discuss. funds, cash and commercial property (but transactions moving investments around, thethe age of 75. items as they arise or to optimise your tax pension benefits have changed, it not private property). Also, you have more administrative costs are higher than those of liabilities. It could also be a way to pass doesn’t mean your pension contract will More accessiblity control over moving your money to another a normal pension fund.Previously, any tax-free cash lump sum money through the generations, either by have changed as well. A SIPP is a personal pension wrapper that investment institution, rather than beinghad to be taken by age 75 and a pension ‘gifting’ regular payments, for example offers individuals greater freedom of choice tied if a fund under-performs. The tax benefits and governing rulesset up at the same time. The only into trusts, or as pension contributions to If the terms of your contract have than conventional personal pensions. of SIPPs may change in the future. Thealternative was if you had a big enough children using ‘normal expenditure’ rules not been updated to reflect the new However, they are more complex than Once invested in your pension, the funds level of pension benefits payable cannotfund to take an income directly from it so as to help avoid Inheritance Tax. legislation, you could find that you can’t conventional products and it is essential grow free of UK Capital Gains Tax and be guaranteed as they will depend on(known as income drawdown). take advantage of them. You could still you seek expert professional advice. Income Tax (tax deducted from dividends interest rates when you start taking your Paying Income Tax find yourself obliged to buy an annuity at cannot be reclaimed). benefits. The value of your SIPP may be lessThe government’s new rules affect In moving money out of your pension age 75. And if you haven’t taken your tax- SIPPs allow investors to choose their own than you expected if you stop or reducebenefits in personal pensions and money fund before you die, you will be paying free lump sum at that age, you could still investments or appoint an investment manager Tax benefits contributions, or if you take your pensionpurchase occupational pension schemes. Income Tax on such payments but at a lose the opportunity to do so. to look after the portfolio on their behalf. There are significant tax benefits. The earlier than you had planned. rate that is lower than the 55 per cent tax government contributes 20 per centGaining more control charge payable on a lump-sum payment Individuals have to appoint a trustee to of every gross contribution you pay – A SIPP could be a suitableMany of these changes were designed to from your pension fund when you die. oversee the operation of the SIPP but, meaning that a £1,000 investment in option if you:limit what the government clearly sees having done that, the individual can your SIPP costs you just £800. If you areas over-generous tax relief concessions. Another age-restricted benefit where the effectively run the pension fund on his or a higher or additional rate taxpayer, the n  ould like to have more control over WBut other changes have created the very rules have been eased is the opportunity her own. tax benefits could be even greater. In the your retirement fund and the freedom toappealing prospect, for people aged to take tax-free cash – typically a quarter above example, higher rate (40 per cent) make your own investment decisions, or55 or more, of gaining more control of your pension pot – when you first start A fully fledged SIPP can accommodate taxpayers could claim back as much as a prefer to appoint investment managersover when and how they can use their to take your pension benefits. Until April a wide range of investments under its further £200 via their tax return. Additional to do this for you and are prepared toretirement savings. 2011, if you hadn’t taken your tax-free umbrella, including shares, bonds, cash, rate (50 per cent) taxpayers could claim pay a higher cost for this facility cash by age 75, you lost the chance to do commercial property, hedge funds and back as much as a further £300. n  ould like a wide range of investments WUnder the current rules, if you meet certain so. Now that restriction is removed too. private equity. to choose fromeligibility criteria, you can now take as Other considerations n  ant to consolidate your existing Wmuch as you want from your pension, You cannot draw on a SIPP pension before pension(s) into a more flexible planwithout the maximum income restrictions age 55 and you should be mindful of the fact n Need a tax-efficient way to purchasethat apply to conventional drawdown that you’ll need to spend time managing commercial propertyarrangements. To be eligible for this your investments. Where investment is madefacility – known as ‘flexible drawdown’ –you have to show that you already have a‘secure pension income’ of £20,000.Enhanceddrawdown facilitiesWhile, for many people, buying an annuityis likely to remain the most appropriate16 A Guide to Retirement Planning A Guide to Retirement Planning 17
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING Enhanced annuities Immediate needs annuities With-profits annuities have the normal If you are a smoker, in poor health or These are designed for an elderly person annuity options, namely single or joint life,Helping you have a life reducing medical condition who is terminally ill and about to enter and a choice of guaranteed periods and it is worth ascertaining whether you a nursing home for the final years of payment frequencies. are eligible for an ‘enhanced’ annuity. their life. A lump sum payment will buy This may pay a higher income because an immediate needs annuity, which Flexible annuitiesmaximise your a medical condition, which is likely guarantees payment of the elderly A flexible annuity combines the to reduce your lifespan, means that person’s care until they die. These advantages of an income for life with the insurer probably will not have to annuities are expected to normally pay out the advantages of a certain amount pay out for as long as for someone in for around two to three years only. of flexibility and control over income good health. payments, investment options and deathretirement income With profits annuities benefits. There are three basic types of With profit annuities pay an income for life, enhanced annuities: but the insurance company invests your When a traditional (non-profit) annuity pension fund in a with profits fund, (rather is set up, the options selected cannot Lifestyle annuities than fixed interest securities as happens be changed at a later date even if yourWhy your annuity will have to last you for longer These take into account certain behavioural and environmental factors, as with a conventional annuity). circumstances change. For instance, if it is a joint life annuity and your partner well as medical factors to determine if you A with profits annuitant therefore benefits dies first, the annuity cannot be re-pricedAn annuity is an investment which Tailoring the income purchase, your estate would continue to have a reduced life expectancy. from any future profits, but will also share to reflect the higher rates for a single lifewill pay you an income for the rest of to meet your personal receive an income for the next three years. in any of the losses in the with profit fund. annuity. But a ‘flexible annuity’ gives youyour life, no matter how long you live. circumstances Any factor that may reduce life expectancy You have to choose an ‘Assumed Bonus income flexibility, investment control andThis is achieved by handing over your Annuities have a number of important Annuity protection may be considered. These include smoking Rate’ (ABR) of say three to 5 per cent. choice of death benefits.pension fund to an insurance company and valuable options that allow you to It is also possible to buy a ‘money (10 cigarettes, or the equivalent cigarsin return for an annuity when you tailor the income to meet your personal back’ or ‘value protected’ annuity. or tobacco, a day for the last 10 years), As a rule of thumb, if the bonus actuallyretire. The insurer then guarantees to circumstances. The most important options If you die before reaching age 75, obesity/high cholesterol, hypertension/ paid by the insurance company exceeds For more information on the benefits ofpay you an income for the rest of your are as follows: and you have not received a certain high blood pressure and diabetes. the ABR, your income will rise. If it is shopping around before you purchase yourlife via the annuity. amount of annuity payments by that less than your chosen ABR, your income annuity, we could help make the process Single or joint time, the balance will be paid as a Impaired life annuities will fall. This means that you have to be easier – please contact us.Increasing longevity means that your A single life annuity pays a secure level of lump sum. This lump sum has the An impaired life annuity pays an even prepared to receive a fluctuating income,annuity will have to last you for possibly income, but stops when you die. If you are rather clumsy name of ‘an annuity higher income for those who have so they are only suitable for people who20 or even 30 years of retirement, making married, it is possible to have a joint life protection lump sum death benefit’ significantly lower life expectancy. The can afford to take this risk.decisions around inflation proofing your annuity. This means that annuity payments and is taxable at 35 per cent. insurer will require a medical report fromincome very important. will continue to your partner if you die first. your doctor (there is no need for you to At present the annuity protection option have a medical examination).Different types of annuity You can choose how much income your is only offered by a small number of Medical conditions such as heart attacks,In the UK, there are basically two types partner will receive after you have died. annuity providers, mainly those which offer heart surgery or angina, life threateningof annuity: For example, a 50 per cent joint life enhanced annuity rates. cancers, major organ diseases, such as: annuity means that when you die, your liver or kidney and other life threateningn  ension annuities (compulsory P partner will receive 50 per cent of your Escalating annuity illnesses such as Parkinson’s and strokes purchase) pension until he or she dies. But be aware A level annuity pays the highest income will be considered.n  urchased life annuities (voluntary P that buying a guarantee will reduce the at the start and does not increase in the purchase) income payment slightly. future, whereas an escalating annuity starts at a lower level, but increases eachAll annuities share the following Guarantee periods year. The increases can be constant, forcharacteristics: You can purchase a five or 10 year instance, increasing by 3 per cent each guarantee to ensure that if you die soon year, or the increases can be linked ton  hey pay a level of guaranteed income T after annuity purchase, your spouse will changes in the retail price index, moren  hey turn a lump sum into a stream of T continue to receive your annuity income commonly known as index linking. future income for five or 10 years.n Lifetime annuities guarantee to pay an It is only natural to want the highest income for as long as you are alive, no Buying a guarantee will reduce the income income, but you should not forget matter how long you live payment slightly, but this is a valuable the effects of inflation. An increasingn  hen you die, payments stop, unless W option if you want peace of mind. annuity may start lower, but it will pay you have chosen a joint life annuity, a out more income in the future. The guaranteed payment period or a value If you select a five year guarantee (which corrosive effect of inflation should not protected (money back) annuity is the norm), and died two years after be underestimated.18 A Guide to Retirement Planning A Guide to Retirement Planning 19
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGGetting the Tracing a personal orbest annuity occupational pension scheme It can be easy to lose track of a pension if youHow to substantially increase your pension income change jobs through your working lifeThe annuity market is very competitive Buying the wrong Benefits of If you’ve lost the details of a pension the then use this information to contact n  hether the employer traded under a Wand rates differ between annuity providers. type of annuity shopping around Pension Tracing Service may be able to the pension provider and find out if you different nameYou can substantially increase your Currently, according to the ABI, more The new rules stop insurers from help by providing your pension scheme’s have any pension entitlement. n  he type of business the employer ran Tpension income by purchasing your than half of all investors who buy an including an application form in the address. You can then contact the n  hether the employer changed Wannuity from the company which pays the annuity – which pays a fixed income for information pack sent to customers scheme and find your entitlement. Information to give to the address at any timemost income. This is called ‘exercising the life – simply buy the default annuity deal approaching retirement, making it less Pension Tracing Service n  hen you belonged to the WOpen Market Option.’ from their current pension provider. As a likely that people will simply buy the It can be easy to lose pension scheme result many end up buying the wrong type first annuity they see. These ‘retirement track of a pension if you You need to give the Pension TracingInforming customers about of annuity or effectively locking into an packs’ have been redesigned to place change jobs through your Service what information you can. Itbetter annuity options uncompetitive pension deal for the rest of greater emphasis on the benefits of working life. will help if you can tell the Pension If you’ve lost theThousands of people could end up with their lives. shopping around. Crucially, where Tracing Service what type of pension details of a pension thebigger pensions as new rules will force insurers are selling an annuity to The Pension Tracing Service (part of The scheme you are searching for. They hold Pension Tracing Service mayinsurers to inform customers about better Shopping around for the best annuity one of their existing customers, they Pension Service) will try and help you details of two types of pension scheme:annuity options. The Association of British deal could increase the size of a will be required to ask about their trace a pension even if you’re not sure occupational pension schemes and be able to help by providingInsurers’ (ABI) new code of conduct forces pension by over a third. A recent circumstances and medical conditions of the contact details. It has access to personal pension schemes. your pension scheme’sinsurers to give more information about how report from the National Association before providing a quote. information on over 200,000 pension address. You can then contactconsumers can ‘shop around’ for a better of Pension Funds claimed that this was schemes. The Pension Tracing Service Occupational the scheme and finddeal, while ensuring that those with health costing pensioners more than £1bn in will use this database, free of charge, to pension schemeproblems receive a higher income as a result. lost retirement income. search for your scheme. This is a pension scheme an employer your entitlement. offers to its employees. If you are The Pension Tracing Service may be trying to trace an occupational pension able to provide you with current contact scheme, start by working out: details for a pension scheme. You can20 A Guide to Retirement Planning A Guide to Retirement Planning 21
    • A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING in its early years, the pension benefits from Contracted out schemes significant equity exposure. There are further requirements if the consolidation payment includesPension Then, as you get closer to retirement, risk is a contracted out benefit (i.e. a Guaranteed gradually reduced to prevent stock market Minimum Pension or Protected Rights). fluctuations reducing the value of your pension. Before the consolidation can proceed, the Most old plans do not offer lifestyling – so fund UK scheme must: volatility will continue right up to the point you retire. This can be a risky strategy and n  btain written confirmation from the O inappropriate for those approaching retirement. member that they understand the risks inconsolidation consolidating this type of benefit overseas Conversely, more people are now opting because the overseas scheme may not for pension income drawdown, rather than provide the same degree of security or conventional annuities. For such people, a priority to the contracted out benefit lifestyled policy may be inappropriate. n  ake reasonable steps to satisfy themselves T that, where the overseas scheme is an Overseas consolidation occupation pension scheme, the member Most UK pension plan members are able to has entered the relevant employmentBringing your pensions under one roof consolidate their benefits to other approved n  ake reasonable steps to satisfy themselves T pension schemes. For those living overseas or that the member has received a statementMost people, during their career, n I dentify any underperforming  These old-style pensions often impose those with overseas pension schemes, it may from the overseas scheme showing theaccumulate a number of different pension and expensive investments with a higher charges that eat into your money, also be possible to transfer their benefits to benefits to be awarded in exchange for theplans. Keeping your pension savings in view to switching these to more so it may be advisable to consolidate any pension schemes outside of the UK. consolidation paymenta number of different plans may result appropriate investments investments in these funds into a potentiallyin lost investment opportunities and n  ccurately review your pension A better performing and cheaper alternative. Qualifying Recognised Consolidating your pensions It’s important tounnecessary exposure to risk. provision in order to identify whether Overseas Pension won’t apply to everyone ensure that you you are on track Economic and Scheme (QROPS) The potential benefits of consolidating your get the best out of theHowever not all consolidation of pensions market movements The procedure for overseas consolidation pensions won’t apply to everyone, and therewill be in your best interests. You should Why consolidate It’s also worth taking a close look has been simplified significantly since April may be drawbacks to moving your pension contributions you’vealways look carefully into the possible your pensions? at any investments you may have 2006. Now, as long as the overseas scheme is plans - particularly so for certain types of made, and keep track ofbenefits and drawbacks and if unsure seek Traditionally, personal pensions have in managed funds. Most unit-linked recognised by HM Revenue & Customs (HMRC) pension. It is therefore vitally important to your pension portfolioprofessional advice. favoured with-profits funds – low- pensions are invested in a single as an approved arrangement (known as a carefully consider all aspects of your existing to make sure it remains  risk investment funds that pool the managed fund offered by the pension Qualifying Recognised Overseas Pension pensions before making a decision as toKeeping track of your policyholders’ premiums. But many of provider and may not be quite as Scheme (QROPS)), the consolidation can be whether or not to consolidate. appropriate to yourpension portfolio these are now heavily invested in bonds to diverse as their name often implies. processed just like a transfer to a UK scheme. personal circumstances.It’s important to ensure that you get the even out the stock market’s ups and downs These funds are mainly equity-based As well as whether the total size of your Consolidating yourbest out of the contributions you’ve made, and, unfortunately, this can lead to diluted and do not take economic and market A QROPS is a pension scheme set up pension funds make consolidation viable, existing pensionsand keep track of your pension portfolio to returns for investors. movements into account. outside the UK that: Issues to take into account include whethermake sure it remains appropriate to your your existing pensions have: is one way ofpersonal circumstances. Consolidating your It’s vital that you review your existing pensions Lack of the latest n s regulated as a pension scheme in the I doing this.existing pensions is one way of doing this. to assess whether they are still meeting your investment techniques country in which it was established n L  oyalty bonuses  needs – some with-profits funds may not The lack of alternative or more innovative n t must be recognised for tax purposes I n E  arly termination penaltiesPension consolidation involves moving, penalise all investors for withdrawal, so a cost- investment funds, especially within with- (i.e. benefits in payment must be subject n G  uaranteed annuity rateswhere appropriate, a number of pension free exit could be possible. profits pensions – and often also a lack of to taxation) n I ntegrated life cover or otherplans – potentially from many different the latest investment techniques – mean additional benefitspensions’ providers – into one single Focusing on fund that your pension fund and your resulting UK schemes, when they receive an application n  inal salary pension benefits Fplan. It is sometimes referred to as performance retirement income could be disadvantaged. to consolidate benefits overseas, must refer‘pension switching.’ Many older plans from pension providers to the QROPS list. If the overseas scheme is Many people, during their career may  that have been absorbed into other Significant included, the consolidation can proceed. accumulate a number of different pensionPension consolidation can be a very companies have pension funds which are equity exposure plans and maintaining these separate plans canvaluable exercise, as it can enable you to: no longer open to new investment, so- Lifestyling is a concept whereby investment If the overseas scheme is not included, it be laborious and complicated, leading to lost called ‘closed funds.’ As a result, focusing risk within a pension is managed according can apply to HMRC for QROPS approval.  If investment opportunities, exposure to undue riskn  ring all your pension investments into B on fund performance may not be a priority to the length of time to retirement. approval is not granted, the consolidation and higher costs. To find out how we could help one, easy-to-manage wrapper for the fund managers. ‘Lifestyled’ pensions aim to ensure that, cannot proceed. you, please contact us for further information.22 A Guide to Retirement Planning A Guide to Retirement Planning 23
    • Content of the articles featured in ‘A Guide to Retirement Planning’ is for your general information and useonly and is not intended to address your particular requirements. They should not be relied upon in theirentirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made toprovide accurate and timely information, there can be no guarantee that such information is accurate as ofthe date it is received or that it will continue to be accurate in the future. No individual or company shouldact upon such information without receiving appropriate professional advice after a thorough examination oftheir particular situation. We cannot accept responsibility for any loss as a result of acts or omissions takenin respect of any articles. The pension and tax rules are subject to change by the government. Tax reliefs andState benefits referred to are those currently applying. Their value depends on your individual circumstances.The performance of the investment funds will have an impact on the amount of income you receive. If theinvestments perform poorly, the level of income may not be sustainable.Produced by Goldmine Media Limited, Prudence Place, Luton, Bedfordshire, LU2 9PEArticles are copyright protected by Goldmine Media Limited 2012. Unauthorised duplication or distribution is strictly forbidden.