The Importance of Pension Planning Š Part One
Derby District & Law Society (D& DLS) magazine – January 2011
The Importance of Pension Planning – Part One
Contributing to a Pension – how, where and when to accumulate pension savings.
As outlined in my last article, the current basic State Pension for someone with a full National Insurance Contribution record is £97.65 per week (£5,077.80 per annum) If you have no other savings you would receive a minimum of £132.60 per week through the Guarantee Pension Credit. In a large number of cases it is imperative to make additional provision elsewhere, but the question is: how, where and when is it best to save for retirement?
The simple answer is that it is best to save for retirement as early as possible.
We suggest that a person in their early twenties should aim to save approx 10% of their gross salary throughout their working life to be able to retire on approximately two-thirds of their salary. This may sound like a lot, but consider the length of time a person is likely to be in retirement these days, given the ever improving health care we have. Current mortality statistics suggest a lifespan of a further 30 years for someone reaching age 65 today – this is almost as long you will have been working and paying National Insurance Contributions!
The first thing to consider is whether your employer offers a Pension scheme. Unfortunately, there are now fewer and fewer Occupational Pension schemes available than in the past and many schemes are now having to close to new members. However, if have opportunity to join an Occupational Pension scheme, you should consider it. The accumulation in a ‘Final Salary’ (or ‘Defined Benefits’) scheme is based on years service and the accrual rate within the scheme. Due to the high cost of final salary schemes, most Occupational Pension schemes are now moving to a ‘Money Purchase’ (or ‘Defined Contribution’) basis, similar to a Personal pension structure, where the Pension received at retirement is more closely linked to what is paid in, how it is invested and annuity rates when you retire.
If your employer does not offer a Pension scheme then you can still take out a Pension – these come in various guises such as Stakeholder Pensions, Personal Pensions, Self-Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSAS) and the most appropriate Pension structure for you will depend on your objectives and your attitude to risk or investment experience. Like a Money Purchase Occupation Pension scheme, the value of a Personal Pension at retirement will reflect the level of contributions paid in, the performance of the investment funds and annuity rates when you retire.
Whilst it is true that living costs can decrease in retirement (when you will hopefully have no mortgage repayments and no further pension contributions to make, etc), however, with retirement typically comes more leisure time, which can often mean costs go up in early retirement. Add in gifts to children and grandchildren and the possibility of funding Long Term Care in later retirement and retirement can be an expensive business!
The importance of a sensible retirement plan
When considering your Pension needs it is important that you take advice! The right way to accumulate funds for your retirement will depend on many things such as your age, your personal circumstances, your attitude to investment risk and your objectives.
It may be more sensible for you to utilise a combination of different savings vehicles to save for your retirement and so taking holistic advice that encompasses all of your circumstances and objectives (both present and future) will ensure that all of your needs are met.
As we continue our journey through the importance of Pension planning, we will be covering more of the Pension planning issues that we deal with for Solicitors and their clients in the next few issues. If there are any particular pension related topics that you would like to see covered, please let us know.
A sensible overall plan
Professional Financial Centre (East Midlands) Ltd has successfully helped many clients to put a sensible financial plan into place that will last them for the rest of their lives. When looking at the huge choice of investments available we are able to prove that we only have your interests at heart. We do not have any vested interest in choosing one particular product or course of action over another. As changes happen, we review our clients’ plans, adjusting them to meet changing economic circumstances and family needs. If you want to challenge us to do the same for you or your clients, you will not be disappointed. If you simply want a second opinion, our view on your existing holdings, or have a general query about financial matters, please call us.
Professional Financial Centre (East Midlands) Ltd is a local financial services resource for Legal and Accountancy firms who do not operate in house Financial Services departments. We share the same ethos as Professional firms, in that we act purely in our clients’ interests, operating solely on a fee basis and accounting to our clients for any commissions. As a result of our qualifications, experience and culture, we qualify to be included on the SIFA Professional Directory of IFA’s, which is endorsed by the Law Society. The database can be seen at www.sifa-directory.info.