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Pensions

Pensions for Your Retirement

Why save for your retirement?

Time was when many people relied entirely on a state pension to fund their retirement, but times have changed; currently the Basic State Pension is £79.60 (2004/05 tax year) for a single person, whilst the Basic State Pension increases each year, it does not increase at the same rate as income. Meaning an ever widening gap between earnings before retirement and the state pension.

A falling state pension - due to shifts in population

The reasons for the decline of the state pension are a matter of simple mathematics:

1. The population of the UK remains constant, and is currently not growing.
2. The size of the UK pensioner population is, however, increasing.
3. A proportion of the NI paid by the working population is to fund retired people's state pension.
4. Therefore, more and more retired people are relying on a stable or shrinking workforce to pay for their pensions.
5. Consequently, the amount of pension payable to each qualifying individual is bound to decrease.
6. In addition, the state pension is falling in value when compared to rising incomes.

Generous tax breaks on private pension contributions

So, bearing in mind these facts, saving for retirement is essential if you're going to be financially comfortable when you stop working. What's more, the government wants us to save for our retirement, so they grant generous tax breaks on pension contributions:

• Basic taxpayers receive tax relief at 22%
• Higher rate taxpayers receive relief at 40%

What kind of pension scheme should you choose?

The idea of having your own personal pension scheme is that when you retire, it should pay you a regular amount sufficient to ensure your life remains financially comfortable - preferably at or near to the level of earnings you enjoy during your working life. What kind of pension you choose depends on your personal circumstances, especially whether you're employed or self-employed:

1. If you are employed and your employer runs a work pension scheme (known as an Occupational Pension Scheme) - it's a good idea to join the scheme (and are often required to) and make a contribution yourself (usually deducted from your wages). Usually, your employer will make contributions too.
2. If you are employed and your employer DOES NOT run a pension scheme - you should consider a Stakeholder Pension Scheme or a Personal Pension Scheme. Your employer might even contribute to your own personal pension scheme.
3. If you are self-employed - again, you should consider a Stakeholder Pension Scheme or Personal Pension Scheme.

You can pay contributions to as many Stakeholder or Personal Pension Schemes as you like, providing you don't pay out more than the maximum levels set by the Inland Revenue.

Alternatively you may choose to invest in a pension which enables you to choose your own investments such as a SIPP Self Invested Personal Pension.

How much money should you pay into a pension scheme?

The general rule is that the more you pay into a pension scheme, the higher the income you'll receive when you retire. Experts tend to suggest between 10 and 15% of your income as an ideal amount.

If you want to pay in extra amounts to your company scheme to boost your pension income, you can do so by contributing to an Additional Voluntary Contribution (AVC) scheme run by your employer or a FSAVC (Free Standing Additional Voluntary Contribution) available from pension providers.

Where should you obtain advice on the right pension for you?

Talk to an Independent Financial Adviser (IFA) for genuine unbiased advice that doesn't favour a particular scheme or pension provider. IFAs have knowledge of a vast number of pension schemes and providers, (there are currently around 30,000 schemes on offer in the UK), and they can assess your circumstances. Then they'll give you advice on a choice of suitable options to match your requirements.

We are fully qualified IFAs therefore please contact us for a quote for independent advice.