Pension Choices

A pension is a fund that you build up over your working life in order to provide an income for yourself after you retire.

It is crucial that you seek expert advice in order to ensure that the correct planning is made for your pension.

Many rely on the State Pension. The maximum basic state pension only amounts to £5,915 (tax year 2014/15). Therefore, many make a pension plan a huge part of their financial planning.

Pension Audit

The Pension Planning Process

So that we can advise you correctly, we need to understand any previous history or pension schemes you may already have.

We try to get you the extra retirement income you may need by assessing if your current pension scheme needs updating.

Pensions – historical complexity (why we need all your information).

Since the 1970s there have been many different types of pensions—some with the same name. It is good to be aware of this because it can cause confusion and complexities.

Maximising Existing Pensions

If you have different pension schemes from different employers, in some cases, consolidation or transfer is a good idea.

Taking Benefits

For most people, taking benefits is a simple matter of calculating the total value available, and then taking some as tax free cash and some as income (normally through a pension, or annuity).

*as at 2014/15 tax year

Pension eligibility depends on personal circumstances. Tax rules and allowances are not guaranteed and may change in the future. The value of pensions can fall as well as rise and you may not get back the amount you originally invested.

New Regime Pensions – Basic Overview

Our core principle is giving people pensions that are clear, easy to understand, encourage savings and prevent abuse by the very wealthy.

All pension schemes must be Registered Pension Schemes. Contributions are controlled by two allowances:

• Annual Allowance – the amount you can invest each year
• Lifetime Allowance – the overall fund size limit

Annual Allowance

This is a limit on how much can be paid into a pension year (typically a tax year) on which tax relief can be obtained.

Currently, during this tax year (2014/15), this is set at £40,000.*

Note – If you earn less than this, you will get tax relief on the amount of contribution up to your earnings.

The first £3,600 of any contribution will always get tax relief – even if you have no earnings.

You can put more money into your pension but it will usually be taxed. If you wish to do this, then it is crucial that you speak with a financial adviser.

In order to build of a sufficient pension fund for their retirement, most people will be able to invest as much as they can afford.

It is also possible to move money from your savings to your pension. By doing this, you benefit from tax relief. If you wish to do this, speak to your financial adviser a decade before your retirement. This means that after retiring, your finances will be a good balance between income and capital.

You can also make contributions on behalf of third parties—meaning that you can help fund a spouse’s or dependents’ pension. If you wish to do this, seek financial advice.

*  For pensions provided on a defined benefit basis, the value of benefits accrued each year will be translated into a notional fund. This is then used to assess your position re the annual allowance.

Lifetime Allowance

Currently (2014/15), the maximum size of fund allowed* is £1,250,000

If you have multiple funds, this is an overall limit.

Important. If your existing funds are above or may grow above this level, then you urgently need to seek advice to protect your expected rights.

*Not strictly true, your fund can build to any size at all, but the excess will be taxed when you take benefits. The tax is designed so you don’t over-fund your pension.

** For pensions provided on a defined benefit basis, the value of benefits will be translated into a notional fund. This is then used to assess your position re the lifetime allowance.

Pension eligibility depends on personal circumstances. Tax rules and allowances are not guaranteed and are subject to change. The value of pensions can fall and rise. You may not get back the amount your originally invested.

The State Pension

Once you retire, the state pension is a potential source of income.

To qualify for a state pension, you must have made national insurance contributions. The amount you receive once retired depends upon how much national insurance you have paid over the years.

However, there are flaws to the state pension. There are no rights and no contract to a state pension. This means that a future government could change the rules or could even stop the pension altogether.

Changing Employers

If you change employers, you need to makes sure that your pension is protected.

This can be very complex, so it is important to collect your full details from your old and from your new employer as to your options.

Then, you must seek professional advice.

Annuities

An annuity is an income purchased with capital.

Annuities are mainly used in pensions, but they can be used for other things.

In this context, where the pension is purchased by using the built up fund, the pension is an annuity.

A basic annuity pension is where you hand over your funds and in return receive an income until you die.

However, in detail it is more complex:

Open Market Option

As well as buying an annuity from the company with whom you have saved your pension, it may be of your interest to know that you can take the fund to another company and buy it from them. By moving fund, it is highly likely that you could get a much better pension.

Note – The annuity rate that a company can offer depends upon many things outside of its control.

The rest of the options are either driven by personal circumstances or governed by scheme rules:

• Would you like your income to be fixed or would you like it to rise each year? (by a fixed percentage or inflation)
• Do you suffer from a health or medical condition in which you would seriously deteriorate? It may be possible to apply for an ‘enhanced’ or ‘impaired life’ annuity to reflect you may have an early death.
• Do you want your pension to continue after your death to benefit your partner? Do you want the level of your pension to be maintained or reduced?
• You can opt for a guarantee or an annuity protection lump sum death benefit if you are likely to die soon–both of which are ways of ensuring that some/all of the sued fund goes to your inheritors.

*Not all pensions are annuities. The main exceptions are Defined Benefit Schemes  (which do not have to go the annuity route, though may choose to do so) and State Pensions (which are taxpayer funded on a year by year basis). Not all tax planning solutions are authorised and regulated by the Financial Conduct Authority.