Guide to Retirement

Retirement should be a time to enjoy, with new hobbies, travel, and perhaps more time with the family. It should not be a time to worry about money, so your pension is probably the most important financial arrangement you will ever make.

Your pension pot is made up of all the money you have saved for your retirement. It can have much more in it than you put in yourself, because the contributions you make are added to by government tax concessions. What’s more, they can be made much larger still by careful investment by pension fund managers over the years.

Put simply, a pension is a tax efficient way to save for retirement. Pension saving can be very tax efficient because you get tax relief on the money you put in. The exact tax benefits depend on your personal circumstances and tax rules, both of which can change.

Most people are entitled to a state pension once they reach statutory retirement age, and if you are an employee, you will probably have an employer’s pension too.

The state pension: The new state pension was introduced in April 2016 and will pay up to £175.20 per week for people who retire in future. To qualify for any state pension a person will need to have made at least 10 years NI contributions, however, to qualify for the full £175.20 you will have had to have made 35 years of NI contributions. Visit www.gov.uk/state-pension for more information on what you will get and how to claim.

Employer pension schemes: Work pension schemes are provided by employers for their staff. Auto-enrolment legislation requires all employers to enrol eligible employees into a pension scheme. They can be good value as your employer will contribute to your pension fund, although you will need to pay in as well. The retirement income they offer will depend on a number of factors, including how much money has been paid in, the time it’s been invested and how much it has grown. You can find out more at www.workplacepensions.gov.uk/employee

Your state and Employer pension scheme should form part of your retirement planning, but they may not be enough to fund the lifestyle you want in retirement. You can also save in an individual or private pension whether you have an employer pension or not. This can boost your pension and can be essential if you are self-employed or tend to change employers regularly. There are three main types.

Stakeholder Pension Plans: These are an affordable solution for pension saving. They have low flexible contributions, and you can stop, start and change contributions without penalty. You will not have to decide where to put your cash; your money will be invested for you based on your attitude to risk and investment objectives.

Personal Pension Plans: These schemes are likely to have a minimum contribution of at least £100 per month. They also have higher annual charges than Stakeholder schemes. However, they normally offer greater investment choice and flexibility with a choice of funds run by the pension company’s fund managers allowing you to take control of where your money is invested.

Self-invested Personal Pensions – SIPPs: Traditional personal pensions limit your investment choice to a shorter list of funds. With a SIPP you can invest almost anywhere you like and choose your own investments. This means that you should only consider a SIPP if you understand investing, enjoy doing the necessary research and are confident enough in your judgement. You must feel comfortable managing your own investment portfolio and picking your own investments. You could make some very speculative investments that turn out well, or you could make some expensive mistakes. You could even invest in things like commercial property, and still enjoy the tax advantages of pension entitlement. But whatever you do, you should certainly get financial advice before you start.

The bigger your pension pot – or pots – the larger the retirement income you could look forward to. There is little you can do to make the most of your state pension entitlement, other than ensure you have made the full NIC contribution over the years. But you may want to make sure you are making the most of an employers’ pension. You can ask the scheme provider for an illustration of the kind of sum you could be looking forward to. It may be possible to increase the size of the pot it provides by increasing your contributions.

However, your pension will fund your future once you finish work. It is simply too important to be left to chance. If you have questions about your current pension arrangements or want to see about doing more to build up your pension pot, it is time to call on some expert advice from the Continuum team. We can provide you with a full pension review, which will show you exactly how your pension pots will grow, and the kind of retirement income you could enjoy from them. If you are not happy with the prospects they present for your retirement, we can work with you to find solutions which will help you build up the pension pots you need – and start looking forward to the kind of retirement that you want.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken. The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.