Independent Financial Advisers     

Retirement Planning

The earlier you plan the earlier you can retire!

No one likes to think about their retirement. For those in their twenties and thirties it can seem a life time away but with a bit of planning it can make all the difference when you get there.

There are many different types of pensions available, here are a few of the main types available.

Company Pension Scheme's

In most cases especially an employed person working for an organisation will be able to not only join a company pension scheme but also have contributions made on their behalf by their employer, this can be a major perk of working for the organisation. 

Schemes can be either Occupational or Personal, 10 to 15 years ago the majority of schemes a person could join would have been occupational with the most common type of pension being a final salary scheme.  This is where for every year an individual is in the scheme an amount of their final salary upon leaving the scheme would be expressed a a fraction (typically 1/60th.)  For example if an individual was in the scheme for 10 years they would received 10/60th's or a sixth of their final salary upon leaving the scheme at retirement for the rest of their life. 

These scheme are very expensive in nature so over time we have seen companies closing the door to new entrants and in some extreme cases closing the schemes all together.  Personal Pension arranagements took over which were less expensive.

Personal Pension

For those who do not have employer who is able to offer a company pension scheme one can take out a private arrangement, these are also popular with self employed individuals.  An individual will make monthly payments into the plan most often than not from monies from his or her's salary which will have been taxed.  If this is the case any payment made into the pension will be eligable for tax relief at 20% (an additional 20% can be claimed if the individual is a 40% tax payer.) to compensate for the income tax already paid. 

The funds invested will grow over time and once the individual reaches the age of 50 (increasing to 55 from 6 April 2010) they will be able to retire and take their benefits.  Should they not wish to retire this early they have until the age of 75 to do so.  Under personal pension rules an individual can take 25% of the value of their pension as a tax free lump sum with the remainder purchasing an income for the remainder of their life which is known as an annuity. 

There are other options available at this time but for most people the annuity is the prefered option as there are many types of annuities than can be chosen.  At the point at which it is to be taken the individual has the chance to use the Open Market Option which allows them to take their annuity with another company if say they are offering more income, however once the it is taken the income is then fixed for life.

Self Invested Personal Pension (SIPP)

As with personal pensions one can still invest in funds investing for example in equities (please see the Savings and Investments section) however SIPP's allow an individual more investment options to consider whilst they are building up their pension pot.

One can use part of the proceeds to directly invest in shares of his or her choice or invest directly into commerical property.  This option is especially popular for business owners who may have their own commerical property.  It is possible for the SIPP to purchase the property which would then be placed within the pension, the individual would then technically become the tenant of the property and pay a market going rent which would be paid into the SIPP. 

There are many advantages and disadvanges to this arrangement, the main advantages are relating to tax, the major disadvantage would be relating to the sale of the property once it was in the SIPP.

For further information on pensions or retirement planning click here to contact us for more information.

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