Guide to Retirement Planning

What is Retirement Planning?

It is generally accepted that retirement planning is about ensuring that you have sufficient financial resources to enjoy your retirement. Although most attention is placed on the provision of a pension, it is also wise to consider the timing of debt repayment to ensure the majority is repaid before you retire. This is especially important on any mortgage on your home.

Over recent years there has been considerable political comment and press coverage regarding the level of the State Retirement Pension. Large numbers of people believe that they will require more money after their retirement than the state pension can offer.

These feelings often lead to people beginning their long term planning with regular contributions into a pension scheme. Pension planning is normally a long-term commitment. The Government is trying to encourage more people to build up a pension fund of their own with the introduction of Stakeholder Pensions and changes to Contracting Out from the State Earnings Related Pensions (SERPS) or the soon to be introduced State Second Pension (S2P).

In adddition to considering your income in retirement, you may wish to consider provision of Health cover, or perhaps plan for how you are going to provide for your dependents.

You may even want to think about planning the effects of Inheritance Tax on your Estate and consider whether it would be wise to transfer a portion of your current assets to your children or grandchildren.

Tax Incentives

Pension funds in the UK benefit from significant tax incentives. These make the growth on the value of a pension fund tax free and allow some of the fund to be drawn in the form of a tax free lump sum. In addition any payments made by you qualify for tax relief. The majority of pension plan types give tax relief at source which means that you only pay the net amount (e.g., a £100 contribution costs you £78).

If you are less certain about the timing of your retirement and want to consider long term saving using other products than Pension Plans you could think about using ISAs, Unit Trusts or Shares.

Details of other products are outlined in our separate guides on:

Investments
Savings schemes.
Retirement Planning

There is not a long time before I wish to retire

Even if you do not have a long time to save for your retirement you should still consider retirement planning. Within recent months there have been many changes to the charging structures applied by the Pension Providers. This means that even if the period until your retirement is quite short you should still get a good overall return on the money you invest. Investment returns can fluctuate and cannot be guaranteed.

When can I retire?

Many people focus their planned retirement on age 65 (men) or 60 (women). This tends to be for historic reasons, based on the age at which people can claim their State Retirement pensions. Recently the State Retirement age for all women born after 6th April 1955 changed to 65, the same as for men.

If you intend to retire before the State Pension age, additional planning is normally required as you will not be able to claim your state pension until you do reach State Pension age. Therefore greater importance is placed on the need to provide a sufficient income to be available once you do stop working.

If you are making private pension provision under normal circumstances, benefits cannot be drawn from a pension plan unless your are aged 50 or over (men or women).

There are some occupations where special reduced retirement ages operate. This allows the benefits of a pension plan to be drawn prior to age 50. Normally reduced retirement ages apply to employments like professional sports people, or some types of Financial Dealers.

Do I have to retire at age State Pension Age?

You are under no obligation to retire at the State Retirement Age. If you want you can delay the drawing of your state pension. During the period that you defer receiving your State Pension it will be increased, so that once the pension is started the weekly payment will be higher than would have been the case at your State Pension Age.

The start date of receiving benefits from Private Pensions cannot normally be extended beyond age 75. Whether the delay in the start of the pension payments will result in a higher income being paid to you will depend on the terms of your particular pension plan. You should contact us for assistance.

When I draw my Pension must I buy an annuity?

A pension annuity is bought by using your pension fund, at the time you retire, to provide an income in retirement.

Many private pension plans now allow you to draw your benefits at the time you wish to retire but do not force you to purchase an annuity. You income is provided by making withdrawals directly from the pension fund which remains invested. Under current rules you can defer the purchase of an annuity until the time you reach age 75.

If you wish to investigate the option of deferring the purchase of your annuity when you retire please contact us for assistance.