Text Box: Retirement Planning

Text Box: What’s the point?   But why would anyone want to invest in a pension, after so many scandals and bad publicity about them? Well, the answer is that pensions are a glorified savings scheme which offer a useful savings discipline and significant tax advantages. They are above all else, the most efficient way of saving some of your current earned income in order to generate a retirement income later on.   The state pension is already very small, at about £82 a week; and it is predicted that by 2050 there will be just two people working for every one in retirement. Therefore, the cost of the current state pension system may become prohibitive and result in even less being available in the future.   We may therefore need to take responsibility for our own retirement planning. Text Box: Pension Investments   In most instances the primary purpose of a pension investment, defined as converting liquid cash into something less liquid and more risky, is quite simply to make more profit. The problem arising for the average non-professional investor is what to invest in?   There is a vast array of Pension Investments available today, including many highly credible and successful Authorised Investment Funds managed by some of the leading names both in the UK and globally.   A pension plan won’t work if nothing is put into it; but how well it works is largely controlled by where the money is invested. Text Box: It’s up to you!   A Pension Plan, as already stated, is a special kind of savings scheme with a certain purpose. They can be either a defined benefit scheme whereby the final outcome is known, commonly called a Final Salary Scheme; or a defined contribution scheme whereby the cost is known but the benefit is not.   Final Salary schemes are a rare and disappearing luxury today, as they are mainly funded by an employer, and not surprisingly they are almost always the preferred choice for successful retirement planning.   Alternatively, Money Purchase schemes, more commonly called Personal Pension Plans, work by building up a pension fund using your own and your employers contributions, plus tax rebates; and then by achieving long term compound investment growth. The value of your pension fund at retirement will therefore depend upon the contribution payments and tax benefits, multiplied by the actual investment growth rates, and minus the costs of running the pension plan itself.   Either way, you probably need to do one or the other if you want to count on a decent retirement income later in life.

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