Personal Retirement Planning..

As the average life expectancy increases, so does the need for an adequate income to live on in retirement. The simple situation is that the basic scheme offered by the government (which has certain qualification criteria) will do little more than allow for a minimal standard of living in retirement, which itself could quite easily last 30 years or more.

Retirement planning falls into two parts. The first part is choosing the best way of saving for your retirement. The second part is selecting the best way to draw your pension when you come to retire. For both parts, professional advice is required, as the decisions made will determine your income in retirement. It almost goes without saying that the wrong choices could cost you dearly.

When saving towards retirement, there are a number of factors to take into account. When do you propose to retire? What income will you need when you retire? What benefits will you get from the state and when will these paid? How much will your existing or former employers pension schemes give you? How much do you need to save, and where should it be saved? What is your current tax position, and how might this change when you retire? These are just a few of the matters that need to be taken in to account.

Traditionally, if you worked for a larger employer, you could often look forward to a pension from your employer that, when combined with the state scheme, would give a comfortable standard of living in retirement. However, pension schemes provided by employers are on the whole becoming less generous, and many are now closed. While your parents and grandparents probably benefitted from schemes which offered a guaranteed benefit, changes in regulation, volatility in investment markets and longevity increases have made it difficult and expensive for employers to continue offering them.

In spite of this, by and large, if you can join an employer’s pension scheme then this is still the right thing to do. Remember, turning down employer’s contributions which would be paid into a pension scheme is akin to turning down a pay rise, so think carefully before you decide against joining.

However, if you do not enjoy the benefits of a good employer’s pension scheme (or want to “top up” your employer’s pension scheme benefits), or you don’t want to rely solely on the state, you will need to arrange your own pension provision. There are a number of ways to save for retirement, but the main ones are through an Individual Savings Account (ISA) or one of the many forms of pension plan. Both options have advantages and drawbacks.

With ISAs, the main benefit is that you can take the money out of the account at any time, for say a deposit on a home, or in an emergency. The growth on an ISA is not subject to either Income or Capital Gains Tax and at retirement you can take part or all the money out, or leave it invested and draw a tax free income from it. An ISA provides you with real flexibility.

With pensions, you cannot access your money until you reach the age of 50 (increasing to age 55 from 2010), and even then there are restrictions on how it may be drawn. In brief, around a quarter of the fund can drawn as a tax free cash sum, the remainder being used to provide some form of taxable income. However, pensions (unlike ISAs) have the benefit of tax relief on contributions. This means that for every 80p invested the government will add 20p. For a higher rate taxpayer, the benefits are even better - for every 60p invested the government will add 40p.

In an ideal world, everyone would invest in both ISAs and pensions so getting the best of both options. As you approach retirement, the need for professional advice on the most appropriate way to draw your pension is absolutely essential, as the decisions made at this point will determine your income for the rest of your life. Should you draw it through a traditional annuity, phased retirement, income draw down or a combination of these? How much should be taken as a tax free cash sum? How will the income be taxed, and how might it affect entitlement to age allowance? What would happen to your pension if you were to die? Who could benefit, and how? These are just some of the matters that need to be considered.

At Coast to Coast, we have the experience and specialist qualifications that enable us to provide personalised independent financial planning advice for your specific retirement planning needs, no matter how complex they may be.

Following an initial meeting which is conducted without charge or obligation, and at which we will examine all relevant issues, we will also discuss the appropriate payment options if you wish us to act for you. In the overwhelming majority of cases this will be through a fixed fee which will be based on the complexity of the advice required, and which will be agreed with you prior to any work being done.

If part of the process involves arranging products that pay a commission, we recommend that this be used to offset part or all of the agreed fee. The advantage of this is that if any of the products arranged are pension based, this would have the effect of giving tax relief on the agreed fee.

By working on this basis, you get a guarantee that you won’t be “sold” anything, and that the advice you will be getting is truly independent.