Planning your retirement can be a daunting endeavour. you are faced with many questions, such as:
Should I choose a stakeholder or personal pension?
How do I effectively plan my savings?
What income streams will be available to me at retirement?
Should I delay my state pension?
In this article, we here at PensionAdvice.org will outline some of your options when planning your retirement income. You will also find some help with discerning when you should seek independent pension advice from a professional financial adviser.
Getting Started – What Kind Of Help Is Available?
PensionAdvice.org exists to refer people to a qualified, local financial adviser. We only ever refer you to an independent financial adviser who is regulated by the Financial Conduct Authority.
Although our service is free, if you receive regulated, independent pension advice then you should expect to pay for it. However, if you are just looking for general answers to questions you have about pensions in general, you should consider visiting the Money Advice Service or the Pension Advisory Service.
How Much Money Will I Need To Retire Comfortably?
Most people will need more than the State Pension when they retire, which will give you (presently) a maximum of £122.30 per week (excluding the Additional State Pension). If you retire after 2016, then you will likely be able to claim the New State Pension.
Because most people will require more than the State Pension to live from, they will likely also need to pay into a defined contribution scheme. This builds up a pension pot in partnership with your employer over the course of your working life.
The other possibility is that you have a final salary (or defined benefit) pension, which gives you a guaranteed income from retirement onwards. However, these schemes are becoming increasingly rare.
Companies are less inclined to offer final salary schemes to employees, as people generally now live longer – increasing the strain on company budgets. In addition, people are also much more mobile throughout their careers, moving from job to job and even changing industries entirely.
Due to this shift in employment patterns, people will defined contribution pensions often build up several different pension pots with different employers. This can present some complex situations, where often people forget how many pension pots they have and how much they’ve paid into each one.
You also then face further questions, even if you have kept accurate records. Should I keep my pension pots separate, or should I amalgamate them into one? What are the tax implications of each option? This is where seeking independent pension advice can be a real benefit.
Workplace & Personal Pension Pots – What Are The Differences?
From 2018, employers in the UK must automatically enrol their employees onto a workplace pension. There are some exceptions to this requirement from your employer, however. For instance, if you are under the age of 22 and if you earn below £10K a year.
Here, your employer will make payments into your pension pot on top of what you pay. You may be able to make additional contributions if you wish, and there are special protections available to mitigate your investments against risk (e.g. in the even your employer goes bust).
For many people, setting up a personal pension in addition to their workplace pension is a viable way forward. This is a pension that you can arrange yourself, or by working with a professional offering independent pension advice. (Bear in mind that sometimes employers offer employees a personal pension as a workplace pension!).
In the case of personal pensions, your pension provider puts your money into investments such as bonds and shares. The idea being that, over time, hopefully your investments will increase in value.
The amount you eventually get from your personal pension(s) depends on a range of factors, such as how much you put in, how the investment’s funds perform over time, and how/when you decide to withdraw your money.
Different kinds of personal pensions exist, so getting help from an independent pension adviser can be really beneficial in helping you identify the best way forward for your particular situation.
However, broadly personal pensions can be distinguished by stakeholder pensions, and self-invested pensions (SIPPs). The former must meet specific conditions set down by the UK government (e.g. limits of charges), whilst the latter give you more control over the investments that comprise your fund.
Paying into a personal pension can be done in different ways. It all depends on the person, their needs and their specific goals. Generally, people tend to make regular payments into a personal pension, or commit individual lump sums.
Bear in mind that there are tax relief factors to consider when paying money into a personal pension, so seek independent pension advice from a regulated professional if you are looking to discern the best option for your retirement.
Also, if you are self employed you may particularly find it to be important to consider a personal pension scheme. After all, you are unlikely to to be able to benefit from the workplace pension contributions of an employer right now!