Saving for retirement 

Pensions are, of course, designed to enable you to save sufficient money during your working life to provide an income stream for you to live comfortably after you have retired.

 

There are many different ‘tools’ used to save for retirement and the taxation and investment elements of pensions can appear baffling. We specialise in explaining, recommending and monitoring pensions for you. Below are the most common sources of pension income to provide for your retirement.

 

Single Tier State Pension

The new State Pension is a regular payment from the government that you can claim if you have reached State Pension Age (SPA) on or after 6 April 2016. Other arrangements applied prior to that date.

 

You’ll be able to get the new State Pension if you are eligible and:

 

  • a man born on or after 6 April 1951
  • a woman born on or after 6 April 1953

 

If you reached State Pension age before 6 April 2016, you’d get the State Pension under the Basic State Pension and Additional State benefits headers as shown below.

 

The full new State Pension is £168.60 per week (2019/2020). Your National Insurance record is used to calculate your new State Pension. You’ll usually need 10 qualifying years to get any new State Pension, 35 qualifying years for the full amount.

 

The amount you get can be higher or lower depending on your National Insurance record.

 

The Basic State Pension for those whose state pension ages falls before 6th April 2016 –  for people who have paid sufficient National Insurance contributions while at work or have been credited with enough contributions. **

 

Additional State Pension 

Referred to as the State Second Pension (S2P) but before 6 April 2002, it was known as the State Earnings Related Pension Scheme (SERPS). From 6 April 2002, S2P was reformed to provide a more generous additional State Pension for low and moderate earners, carers and people with a long term illness or disability and is based upon earnings on which standard rate Class 1 National Insurance contributions are paid or treated as having been paid. Additional State Pension is not available in respect of self employed income.

 

From April 2016 both the basic state pension and additional state pension were combined to offer a simple single tier flat rate pension.  **

 

An Occupational Pension 

(Through an employer’s pension scheme) – This could be a Final Salary Scheme (sometimes referred to as Defined Benefit) or a Money Purchase scheme (usually referred to as Defined Contribution). Pensions deriving from Final Salary schemes are usually based on your years of service and final salary multiplied by an accrual rate, commonly 60ths. The benefits from a Money Purchase scheme are based on the amount of contributions paid in and how well the investments in the scheme perform.

 

Personal Pensions Schemes 

(Including Stakeholder schemes) – these are also Money Purchase schemes and are open to everyone and especially useful if you are self-employed, just for topping up existing arrangements. From October 2012, the government introduced reforms and all employers now have to offer their employees, who meet certain criteria, automatic enrolment into a workplace pension. Employers can use the government backed scheme, National Employment Savings Trust (NEST), or offer an alternative ‘Qualifying’ work place pension scheme such as a Group Personal Pension, providing it ‘ticks’ certain boxes. The process was phased in between 2012 and 2018 depending on the head count of a firm. Employers are required to contribute a minimum of 3% of salary with Employees making a personal contribution of 4% with tax relief of 1% added on top, which again, was being phased in gradually in April 2019.

 

Retirement Options

There are now a vast array of different products that may be used at retirement to provide benefits, from the traditional form of annuity that provides a regular income stream to Flexi-access Drawdown which enables lump sums of benefits to be taken either as a one off payment or over a given number of years. Given the complexity and choice all individuals now have, it is important to seek independent financial advice before making any decisions.


State Pensions may not produce the same level of income that you will have been accustomed to whilst working. It’s important to start thinking early about how best to build up an additional retirement fund. You’re never too young to start a pension – the longer you delay, the more you will have to pay in to build up a decent fund in later life.

** For those who have reached state pension age on or after 6th April 2016, these no longer apply.

 

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE.

 

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore the tax treatment of pension benefits can and may change in the future.

 

Personal and Stakeholder Pensions

Personal Pensions represent a popular and attractive way of saving for your retirement.

 

All monies invested into your fund grow free of capital gains tax, and the contributions you make are enhanced by income tax relief at source. For example, if you invest £80, the government adds on tax relief (currently 20%) to enhance your contribution to £100! If you are a higher rate taxpayer you can claim additional relief through your PAYE coding. An annual allowance of up to £40,000 (2018/2019) is available as well as the possibility of utilising potential carry forward of unused annual allowances.

 

A personal pension is an arrangement made in your name over which you have personal control. You can alter your contributions, suspend them, or stop them completely. You will be eligible to take 25% of your accumulated fund tax-free when you retire, the earliest age being from 55. There are a range of options when you decide to take benefits such as purchasing annuity or electing capped or flexible drawdown. Personal Pensions usually offer a range of investment mediums to suit your attitude to investment risk, and you can change your investment at any time.

 

Stakeholder pensions are similar to personal pensions but have their charges capped at 1.5% for the first 10 years, reducing to 1% thereafter. Whilst Stakeholder plans are generally considered a little cheaper than Personal Pensions, investment choices may be restricted.

 

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore the tax treatment of pension benefits can and may change in the future.

 

Advanced Pensions

In recent years the pensions industry has become more advanced in terms of the flexibility of investments available and the structure of the actual pension arrangements.

 

It is an area of constant change and you should consult us/me regularly to make preparations for a secure and enjoyable retirement.

 

Self Invested Personal Pensions (SIPPs)

A Self Invested Personal Pension (SIPP) is a tax-efficient wrapper within which a wide range of investments can be held. A new SIPP must appoint a scheme administrator, usually the recognised product provider. SIPPs have the same tax benefits and regulations as conventional personal pension plans but you and / or your advisers have control over the investment choice – each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for Her Majesty’s Revenue & Customs (HMRC) purposes.

 

The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self investment’ are only advantageous to people with very large funds and / or investors with some level of sophistication when it comes to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP and these charges would erode smaller funds quickly.

The benefits of using a SIPP include being able to invest in:

 

  • Stocks and shares listed or dealt on an HMRC recognised stock exchange, including AIM
  • Stock exchanges that are not recognised by HMRC, e.g. OFEX.
  • Unit trusts, open ended investment companies (OEICs)
  • Warrants, covered warrants
  • Government stock and fixed interest stock
  • Unquoted shares
  • Commercial property & land
  • Property funds

We will be able to provide more details and make a recommendation based on your own circumstances.

 

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore the tax treatment of pension benefits can and may change in the future.