Affinity Finance Independent Financial Advisers

Text Box: Pensions and Annuities are the two most common elements of retirement planning; with pensions being the pre-retirement stage and annuities post-retirement. Because these are both financial planning issues, and they are both significant stages of your life, then both pension savings and retirement income are a dynamic journey rather than a single destination. Ignore them at your own risk!

We all have a need to plan for our own retirement. Retirement can last for 20 to 30 years, maybe even longer. When Lloyd George first declared the State Pension system in 1908, which you got when you reached 70, the average male life expectancy was about 70 years. Today it is 84. The State Pension is a good starting point, but as a result of current demographics, it may not be enough on its own. So, if you want a higher income in retirement then you need to do something about it yourself.

Pensions are a long-term investment in your own future; and should be considered very seriously.

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: Something for nothing!

The attraction of pensions is that they give tax relief up to your highest rate. Therefore, if you save £78 as a standard rate taxpayer, the government will uplift this to £100 in total. For higher rate taxpayers, another 18% can be reclaimed as tax relief amounting to a total tax benefit of 40%

A further bonus is that once a pension plan has been set up, the contribution payments become a routine habit, and have a good chance of surviving their intended purpose.

The downsides are that you can only access your money from the age of 50, soon to be 55; and even then you are limited as to what you can do with it.

Are you claiming your 22% or even 40% tax back from the government?

Text Box: Pension Contributions

The main points governing what goes into your entire pension planning arrangements are:

Þ Up to £3,600 per annum if you don’t have any earned income
Þ Up to 100 per cent of your earned income subject to an upper limit of £215,000
Þ A maximum lifetime value of £1.5m You can have more than this but the extra amount will incur tax penalties rather than tax benefits.

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?

The usual range of tax efficient pension investments includes the following assets:

Þ          Stocks & Shares of Public Listed Companies (Plc’s)
Þ          Unit Trusts & OEIC’s (Open Ended Investment Companies)
Þ          Gilts and Bonds
Þ          Unquoted Shares of Limited Liability Companies (ltd)
Þ          Commercial Property & Property Funds (REIT’s)

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. If pension planning is a clever piggy bank; then retirement is a delicious slice of bacon!

Text Box: It’s clear that choosing the right retirement plan is not simple, particularly when there are so many providers and products.
Among the decisions you need to make are:

·             How much should I invest?
·             How long should it last?
·             What risks should I expect?
·             Which product is right for me?
·             Which provider is the most appropriate?

Retirement Advice

Last but not least is the value of good advice. It’s well worth knowing that:

·             It won’t usually cost you a penny more to take our advice than if you had bought directly from the manufacturer!
              This is because we can fund the cost of our service via a commission offset agreement with you – which amount would otherwise                  have simply been profit for the product provider.
·             There are often exclusive products, which may be unavailable to you directly, but which you can take advantage of through us.
·             And in addition to this, we can assure you that we’ll help you find the right product, from the right provider, at the right price!

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