Planning for tomorrow, today. Pensions and Retirement Advisers Based in Reading. For all your pensions advice, from saving to taking the benefits at retirement.
It is never too early to start thinking about packing up and taking off to live the dream.
All it takes is a plan. Putting it off until tomorrow, will simply delay the inevitable. Remember, it is better to do something than nothing at all.
It’s your journey
The big question, is how much do you need to live a comfortable retirement? Everyone’s dream is different. What you value will be different to everyone around you. But money and how you save it is the overriding factor to a more financially secure future.
Taking the first step is easier with support. As experienced retirement planning advisers, our guidance is designed to find your right way forward. Although we are experienced pension and retirement advisers based in Reading, we cover many areas, and we come to see you at home or your office, so you do not have to travel.
We can:
· help you work back from your retirement aspirations, calculating how much you realistically need save;
· select products that are flexible enough to adapt to your changing circumstances between now and retirement;
· find the perfect blend for your needs today, and your plans tomorrow.
The trend of people needing to save for their own future is unlikely to slow. If you think now’s the right time to start planning for tomorrow, today, contact us now. We can help you with all your pensions advice, from the initial start of your pension savings, till the eventual taking of your benefits.
* SEE BOTTOM OF PAGE FOR NEW MAXIMUM RETIREMENT DETAILS FROM TAX YEAR 2011/2012.
Lets make a start:-
Stakeholder Pensions
This is a low cost form of personal pension, not a state pension, aimed at people who do not currently have a pension and wish to save for that final "holiday" ie retirement. They are personal individual arrangements, and are portable so can be used if you change jobs, or dont have a job, (up to certain contribution limits). They are called a money purchase scheme, and are not a final salary arrangement. The final amount of pension you will receive is based on the size of the fund at your selected retirement date.
Stakeholder pensions are private pensions, but operate within a framework laid down by government.
The minumum contribution is £20pm, can be transferred to another scheme without penalty, and you can start and stop as you wish, without penalty, make small one off payments from £20, so is very flexible and penalty free. Easy really.
Employers with more than 5 employees have had to provide their employees with access to a stakeholder pension scheme since the 8th October 2001, but they do not have to make a contribution to the scheme, and it is not compulsary that you enter such an arrangement. Its all down to you.
Tax relief is available at your highest marginal rate, you can save up to £3,600pa without evidence of earnings, so can save if you have no income, such as non working spouses, and can also be set up for children, and grandchildren, where you can save up to £3,600 annually, so you can save too from birth. Never too early to start!
Some providers offer a really good choice of funds for you to choose from, with different levels of risk, so why not come to Millhaven and let us help you. We can research from the whole of market to make sure you have the right scheme. And remember if it does not perform as you like, then you can transfer to another scheme without penalty.
Personal Pensions
Personal pensions have been popular since 1988 when they were introduced to try to provide employees of companies that did not have access to company schemes, with an alternative method of saving for their retirement. They were also open to the self employed. They are offered mainly by large insurance companies, or banks.
Personal pensions work much the same as the stakeholder pension, as the amount of pension you will receive, will depend on the amount you put in, the growth of the underlying investments, and the annuity rates pertaining on the day you actually retire. These arrangements are called "money purchase"schemes.
You can put in up to 100% of your earnings, and are open, as is the stakeholder, to members who are working, (who can save up to 100% of earings), and those not working, and can also be set up for children and grandchildren, up to the limits of £3,600pa.
Personal pensions are very flexible, and are offered by many different insurance companies, but some may have a higher minumum level of savings than a stakeholder, and some flexible schemes may have a higher charge on some of the available funds, as some funds may be external funds to the insurance company, with outside investment houses, and in effect you have to pay their charges as well . However personal pensions often offer a very wide range of funds, with very diversified choices, with very different levels of fund risk, so would be chosen by investors who wish to move between funds as market conditions change for maximum growth.
At Sesame we have our own in house research department, so why not let Millhaven help you with the provider, and choice of funds so that you will be set up properly, with investments made into funds with the correct risk rating for your level of risk.
As an addition, most of the main pension providers will provide members with a log in facility, so that you can log into your own pension account on line, see your up to date value of your funds, move funds on line for maximum control, and this will allow you to take more interest in your pension than previously when you had to wait till the end of the year to receive a statement showing how your fund had done. Too late then if you should have moved during the year due to a major problem in the economy etc.
When you get to retirement you can take 25% of all of the fund back as tax free cash, and take the rest as an annuity, or you may like the idea of a flexible annuity, (may be a higher level of risk), or you may like to look into the idea of leaving your pension fund invested at retirement and taking income drawdown from your plan.
Please see the other pages on this section at top of page under Retirement Planning, or go to the page on pension drawdown.
Pension Drawdown
Company Pensions
These include the gold standard pension, - final salary schemes. Then there are superannuation schemes, and employers defined contribution schemes, ie money purchase arrangements. They are all called "occupational" pension schemes, and should not be confused by an employer offering a stakeholder pension scheme for the staff which is a form of personal pension arrangement.
Lets look at the difference:-
Final Salary Schemes -
These are called defined benefit schemes and are based on your final salary on leaving the company, the length of service with the company, (in the pension scheme), and a few other factors which the company will have negotiated when setting up the scheme. These will be in the company booklet, and you may be able to purchase extra years of service, or make money purchase payments, to a seperate part of the overall arrangement, so boosting up the final benefits.
Money Purchase Arrangements -
These are made into an "occupational" money purchase arrangement, and are based on the amount you put into the scheme, the performance of the fund from now till you retire, and then the annuity rates available at the time of taking the benefits, and whether you decide to take any tax free cash from the fund at retirement, which can be any amout up to 25% of the fund saved. With this arrangement, ideally you need to keep an eye on the fund you are in, to see if you need to move the money from time to time, for example from say the Managed Fund, into the Cash Fund, in times of crisis, such as the banking crisis. With this type of arrangement you need to be more aware of what you are doing.
You can see that the money purchase arrangement is more uncertain than the final salary scheme, as you will have no idea what the annuity rates will be till you get to retirement, they could be excellent, or really poor.
Tax relief will be allowable at your highest rate, on 100% of your taxable earnings for the current tax year, up to a certain limit, so is a very tax efficient way to save for that final holiday!
The eligibility of company pension schemes varies with each company, so do ask the human resources department about this. You may be able to join straight away, or may need to complete a probationary period before being asked to join. You may be only able to join at certain times of the year. You may also need to be a certain minimum age before being able to join the main scheme.
How much can you save in your pension pot in total?
Each person has a total maximum permitted tax exempt pension fund
allowance, called the Standard Lifetime Allowance, the level of which is reviewed every 5 years by the Treasury. The levels since pension simplification took place, ie from 6th April 2006 are as follows:-
2006/2007 tax year £1.5m
2007/2008 tax year £1.6m
2008/2009 tax year £1.65m
2009/2010 tax year £1.75m
2010/2011 tax year £1.8m
2011/2012 tax year £1.5m (reducing the allowance now places more people in charge area, so will help tax reciepts).
For those of you who were lucky enough to have at least £1.5m in your pension funds on the 05/04/2006, and opted for Primary Protection, the reduction to the original level will markedly reduce the value of Primary Protection as it will in effect be nullified at that point.
For money purchase schemes, ie stakeholder, personal pensions etc. it is the value of the fund.
For final salary employees who have not yet taken their pension, the deemed fund value is 20 time expected pension. Therefore an expected pension of say £10,000pa would be a deemed fund value of £200,000.
For pension already in receipt the deemed value is 25 times pension being taken. Therefore a £10,000pa pension would be 25 times = £250,000 deemed fund value.
The above standard allowance may be increased, (called an enhanced allowance) if, you worked abroad and joined a recognised overseas pension scheme, and now wish to transfer the benefits to the UK. Where you joined Primary Protection of your existing pension funds. For some individuals who are in the UK, but may not have been eligible for UK tax relief on pensions, for example people who happen to work in the UK for the United Nations, (who have their own scheme in another country). People who are in receipt of pension credits from pension sharing orders from a divorce, (before 06/04/2006).
WHAT HAPPENS IF I EXCEED THAT LIMIT?
A charge is only made at the time of taking the benefits, not just having the money in the fund. If you take the excess above the limit as cash, then you will have to pay the Revenue a 55% recovery charge, as a one off payment. If you are taking it as pension income the you pay a one off charge of 25%, (you have to bear in mind that as pension income you will be charged income tax on the pension, so they get two taxes from you, so is about the same).
How much can I put into my pensions in total each year?
There is an ANNUAL ALLOWANCE that the Revenue use to make sure you do not exceed their limits. The limits are:-
2006/2007 tax year £215,000
2007/2008 tax year £225,000
2008/2009 tax year £235,000
2009/2010 tax year £245,000
2010/2011 tax year £255,000
2011/2012 tax year £50,000 (this allowance same to 2015/2016)
ANY PAYMENTS IN EXCESS OF THESE LIMITS CREATE TAX CHARGE TO INDIVIDUAL OF 40%.
The reduction in the annual allowance in the tax year 2011/12 will save the Treasury about £4billion per year, in case you were wondering why it has reduced so much!
In March 2011 the Treasury have confirmed that if you have to pay an annual allowance charge of over £2,000, then you can pay the charge from your pension fund. So you pay the first £2,000 yourself, and your pension fund pays the rest.
For money purchase arrangements, eg. stakeholder and personal pensions, it is all contributions made by the individual, a third party, and an employer. It does not include contracted out rebate contributions.
For final salary schemes, and active members, it is the increases in the capital value of the members pension, and tax free cash benefits. For deferred members, (members who have left the company), it is only the increases that exceed the largest of 5% or RPI, so are not generally affected. The notional fund value on increases is 10 times pension increase, and NOT the 20 times on the lifetime allowance calculation when taking the pension.
However it is not as simple as to how much you have contributed in total during a tax year. The starting point is the" total pension input amount" of each pension you have been paying into. Each pension has a pension input period.
For money purchase schemes, eg stakeholder pensions, the period starts when the first contribution starts and then finishes 12 months later.
For those in final salary schemes the period starts when the member starts to accrue benefist, and could finish 12 months later, or say on the 5th April each year, or on the schemes accounting date. You will have to ask your scheme administrator for the input period.
INPUT PERIODS FOR SAY TAX YEAR 2010/2011.
The input amount is the amount that finishes in the tax year. So say you took out a stakeholder pension on 8th March, the the input period would end on the 7th March, and would fall into the tax year 2010/2011.
If you had another stakeholder pension that started on say 9th September, so finishing on the 8th September, then it would be due against the tax year 2011/2012, as finishes during the NEXT tax year. However you could put your full allowances into each scheme in this tax year ie 2010/2011, as one pension would be counted in this tax year, and the other in the next! So in effect you have made two annual allowances in the same tax year as your contributions fell into TWO different input periods.
The above takes a bit of thinking about, but remember each pension has its own input period, and is when it finishes, on which tax year is based on.
Who said the authorities keep things simple!
Maximum retirement age details from tax year 2011/2012 onward
* WILL BE ABLE TO PURCHASE AN ANNUITY AT ANY AGE, with no upper limit. Up to 22nd June 2010 those aged 75 had to take an annutiy, scheme pension, or if in drawdown, and alternatively secured pension at age 75. From 22/06/2010 - 05/04/2011 those aged over 75 could wait till new rules come in at beginning of new tax year. Those in drawdown for example could remain in drawdown to aged 77.
*TAX FREE CASH CAN BE TAKEN AT ANY AGE. The rules for tax free cash have been that you had to take it by the age of 75 or loose that benefit.
* ALTERNATIVELY SECURED PENSION IS WITHDRAWN. For those in drawdown, at age 75 you had to either take an annuity, or transfer to ASP. Now you will be able to remain in drawdown on an ongoing basis, most members being in "capped" drawdown, where they can take from 0% pension to 100% of the normal annuity rate applicable at your age, with a few members being able to elect for "flexbile or uncapped" drawdown, if they have, OTHER retirement income, from the state, lifetime annuities, scheme pensions, or overseas pensions, of at least £20,000pa, (not including any income from the drawdown scheme).
ANNUITIES AND GENDER DISCRIMINATION 02/03/2011
From Europe, and from the Advocate General. The banning of gender discrimination in annuity rates, (you probably know that women receive a lower annuity rate generally as they live longer).
Only comes into force from the 21st December 2012.
Some annuity providers may equalise annuity payments before that date if they wish.
Annuity rates may rise due to the expected rise in interest rates.
For clients it is always best to use the "open market option" to obtain the best annuity rate. Your current pension company you have been saving with may not be interested in paying a good annuity rate, so you may loose out. Also some annuity providers do not offer enhanced rates for things like smoking, and health issues.
