PENSIONS – Personal

Why pension planning is important
As people are living longer, the task of ensuring that they have enough money to enjoy a reasonable standard of living throughout their retirement is becoming more and more challenging.

Whether you want to have a quiet time with your family or go on exotic trips around the world, you’ll have to start planning early to at least cover your basic standard of living. The best way to do this is to spread the payments over as long a period as possible before you retire. This should avoid the need for large top-up payments as your retirement draws closer.

It's never too early, or too late
No matter how far away (or how close) your retirement seems now, you should think seriously about the way you want to spend your time, how much it’s going to cost and how much you need to save so you can have a retirement to look forward to.If you’re in work, you’re used to earning money so you can maintain your standard of living. Your income buys you the lifestyle you choose, and gives you a degree of freedom.

If you compare what you’d get in retirement with your current income, you’ll be able to judge for yourself what the difference to your life would be. Starting a personal pension plan, even making a modest monthly contribution, should certainly make a difference.

What is a personal pension plan?
A personal pension plan is a tax-efficient savings scheme available to anyone under 75. There are many different ways of making contributions, from regular monthly payments to a single lump sum. At the retirement date you choose, the money you have accrued can be used to buy an annuity, which can give you a regular income for the rest of your life. You can also take a proportion of your fund as a tax-free cash payment when you retire. If you die before you retire, the fund will be paid out in benefits to your family or other beneficiaries.

How a personal pension plan works
A personal pension plan is a very flexible way of saving - you can make regular monthly or yearly payments, as well as one-off payments. Because of the tax benefits, the Government sets limits on how much you can pay into the plan. Non-earners can contribute a maximum of £3,600 a year, and earners can pay their total earned income up to the annual allowance. You can change or even stop your contributions, or transfer your savings into another pension fund, at any time.

Retirement
You can set your retirement date at any age between 50 (55 from 2010 )and 75. However, you don’t have to retire at that time - it’s simply the date at which you stop paying into the fund and can use the money to buy an annuity, which gives you a regular income for the rest of your life.

Tax-free cash
You can also take 25% of the fund as a tax-free cash lump sum, although this will reduce your pension payments.

Personal pension fund choice
Your pension fund is invested by experts on your behalf. However, you have a considerable degree of control over the way in which this happens.

Risk levels
Each fund has been allocated a six risk classifictions, from minimal to higher risk, to help you choose the funds you want. The risk classification allocated is relative to the entire fund range and based on the fluctuation in historic values and each fund's defined objectives.

Choice
You can choose to invest your pension plan in funds from a number of highly regarded and respected fund management companies.

Lifestyle investment strategy
Alternatively, you can choose a lifestyle investment strategy, which aims to build your pension fund in the earlier years, then protect its purchasing power as you near retirement.

Personal pension plan common questions
What charges do I have to pay?
We charge fees for managing your plan and looking after your investments, which we deduct from your plan. Some of our externally linked funds also have a charge for investing in them. You don't have to pay any other additional charges.

What are the tax advantages?
Anyone with a pension plan gets income tax relief on their contributions at the basic rate, even if they’re not a taxpayer. This means that currently for every £100 invested into your fund, you only have to pay £78. The other £22 comes from the Inland Revenue.

Is it possible to change funds during the life of the pension plan?
Yes, you can change the funds you’re invested in at any time.

Are there any risks involved?
There are risks involved in any investment. It’s possible that the value of the fund may go down as well as up for reasons such as investment performance. Pension benefits are not guaranteed.

What happens if I die before I retire?
If you die before your retirement age, the value of the fund will be paid to your beneficiaries.

Change of circumstances
As your circumstances change, you should look at your long- and short-term savings and make any adjustments. If you move from a job with a company pension scheme to one without, for example, all contributions to your fund will stop. A pension can’t be looked at in isolation. It has to be balanced against your other financial affairs, your changing expectations and your responsibilities. That’s why you should get into the habit of reviewing it not only at the milestones in your life but regularly in between as well.

To talk to one of our advisors, call 0800 3893345 or email info@city-financial.co.uk