An initial glimpse at Pensions and Retirement Planning

One word sums up this subject is CRUCIAL. Understanding how and ensuring you will be secure in retirement is very important – and often, little understood. As such, it is a key area where financial advice from an Independent financial adviser is essential for most of us. Even State Pensions are unclear to many – and there are numerous ways of supplementing whatever the State will provide. As medical technology has advanced over time, the average age of the population has increased and this means that in future, the proportion of workers versus retirees will change. There is therefore, much concern about how / if State Pensions will be funded. As such, and in attempts to encourage self-funding and personal planning for retirement, various legislation changes have been introduced, aimed at encouraging people to save for their retirement, providing tax incentives, and relaxing rules so as to introduce flexibility and affordability – hopefully for everyone. The fact that you are taking the trouble to read this, suggests that you should be congratulated for thinking ahead! And never, EVER, think it is either too early, or too late to matter. There are so many ways and products which can help, and these vary in terms of their costs as well as their potential risks and returns – so do seek help from an Independent Financial Adviser through what is potentially a minefield. Too much is at stake.

Some common Pensions ‘Solutions’

Whichever way you look at it, retirement planning is all about saving for a comfortable lifestyle in later life. But there are many ways in which this can be achieved – short of inheriting of course!

State Pension

This provides regular income, paid by the Government, when you reach State Retirement Age. How much you receive depends on the contributions you have made during your working life via National Insurance. State Retirement Age and rules surrounding pensions were altered in April 2016.

Workplace Pensions

This type of Pension, as you might suspect, is arranged by your employer, and broadly there are two types

Defined Benefit Schemes (DBS)

Such schemes guarantee you an income when you retire and how much you receive will vary, being largely dependent upon your pensionable service and earnings

Defined Contribution Schemes (DCS) – or Money Purchase Schemes (MPS)

With these, you pay money into the scheme and a Pension Provider selected by your employer, invests it. Hence, in this instance, as well as relating to the amount of money you pay in, what you will receive will also be dependent on how well the investments made have performed.

Following law changes made in 2012, it has been incumbent on employers to operate a system of ‘Auto Enrolment’ for Workplace Pensions and this means that most employees will be included, with many employers choosing to use a multi-employer scheme, so as to have the protection of not ‘going it alone’.

Group Personal Pensions

These schemes involve a collection of pensions where members make defined contributions and build up a Personal Pension ‘Pot’, which is subsequently converted into income upon retirement.

Personal Pensions

These are where (ideally with help from an independent adviser) you arrange your own savings scheme. You pay in money and as a rule, you have some control over the decisions made about where the money is invested.

Stakeholder Pensions (a type of Personal Pension)

These are another type of defined contribution scheme which has capped charges, where small / flexible contributions are made and where you do not have to make your own investment choices. Sometimes employers offer these although you can start one personally.

Self-Invested Personal Pension Plans (SIPPs)

Another kind of Personal Pension Plan is the SIPP which is effectively a ‘wrapper’ that allows you to select where money is invested and from which you can draw retirement income from age 55

In future blog posts, we’ll be looking at some of the ways you can use your pension to make property and other asset investments.

Published: 04 June 2020