Retirement & Pensions

Britain has an ageing population and we all can expect to live longer. However, the number of babies born each year remains constant whilst there are more and more pensioners relying on a smaller and smaller workforce to fund their State pensions. The single persons' current basic State pension is around £75 per week, and that figure is set to fall in real value compared to earnings in coming years. In addition to which, there will be less and less State pension money available to go round.

Therefore, it is vital that we all make extra provision for our retirement through some form of savings vehicle. To encourage people to save for retirement, the Government allows very generous tax breaks on pension contributions. Basic rate taxpayers receive tax relief at 22% and higher rate taxpayers can receive relief at 40%. It's not often that the Inland Revenue actually gives you money. So it makes sense to take advantage of a pension, one of the most tax-efficient ways of investing you will ever find.

Stakeholder Pensions
These were introduced in April 2001 to encourage those on lower incomes to make private provision for their retirement. They are generally available to anyone based in the UK. Stakeholder pensions are available for employed people and the self-employed. Also for the first time, people without earned income, including children will be able to save into a pension plan or someone can on their behalf.

Any employer with five or more staff are obliged by law to offer a Stakeholder pension scheme to employees, unless they already offer a pension scheme which meets certain standards.

The aim is that Stakeholder pensions will be straightforward, low-cost, flexible and transparent. The rules state that pension providers cannot charge plan holders more than 1% of their fund in total charges each year and contributions can be varied or even ceased without penalty at any time.

Pension Types
There are a number of different types of private pension plans to choose from, and the plan appropriate to you will depend on your circumstances.

If your employer runs a company pension scheme, it usually makes sense to join it, especially if your employer makes contributions to your fund in addition to your own.

If your employer does not offer a company pension scheme, or if you are self- employed, you should consider first a Stakeholder or personal pension plan. If employed, you may be able to persuade your employer to make contributions too.

If you feel confident enough, you also have the option of a Self-Invested Personal Pension (SIPP), where you can manage your own investments.

You can contribute to as many Stakeholder or personal pension plans as you like as long as you do not exceed the maximum levels for contributions set by the Inland Revenue.

Contribution Levels
You should put in as much as you can afford but it is generally recommended that you contribute at least 10% of your gross salary and increase your contributions as your earnings increase.

In an occupational pension you are allowed to invest up to 15% of your taxable earnings, on top of what your employer contributes. However contribution rates are often set at, say 3% or 5%. But should you wish to top up your pension benefits whilst in an occupational pension scheme you can do so by contributing to an Additional Voluntary Contribution (AVC) scheme run by your employer or a Stakeholder pension plan.

If you earn no more than £30,000 p.a. and are not a controlling director you will be able to make concurrent contributions to a personal pension plan, including a Stakeholder pension. Contributions of up to £3,600 p.a. gross will be permissible, in addition to any AVCs. Alternatively, you can look outside the company and go to the provider of your choice for a Stakeholder pension or a Free Standing Additional Voluntary Contribution (FSAVC) scheme. But note that an FSAVC will generally be more expensive when it comes to charges.

If you are not in an occupational pension scheme you are able to contribute up to £3,600 p.a. gross into a Stakeholder or personal pension regardless of your earnings. Where an annual contribution exceeds £3,600 there are percentages of your income which you can invest in schemes such as Stakeholder or personal pensions:

But the above figures are subject to the maximum which is currently £99,200 in 2003/04.

Retirement Income
From a traditional occupational final salary scheme, the amount of income you can expect each year is worked out using a set formula. The company might pay you, say, 1/60th of your final pay for every year you have worked there. So, if you have worked for 22 years and your final salary is £33,000, you will receive 22/60ths of £33,000, which is £12,100 a year.

If you are in an occupational money purchase scheme, your contributions and those made by your employer on your behalf are invested in funds, usually linked to the stock market. The return on your investment depends mainly on the performance and the type of funds you have chosen to invest in. The same applies with Stakeholder and personal pension plans. As with any long-term investment, the value of funds can go down as well as up and past performance is no indication of future performance.

Approximate funds for net contributions of £195 a month (£250 gross) at 7% growth and after taking average charges into effect

• After 5 years £ 17,425
• After 10 years £ 40,667
• After 15 years £ 71,668
• After 20 years £113,017
• After 25 years £168,169
• After 30 years £241,731
• After 35 years £339.850
• After 40 years £470,721

Source CCL Pensions Analyser

These figures are only examples and not guaranteed. What is payable depends on how your investment grows and the interest rates at the time you retire. You could get more or less than the figures shown. The figures are based on a 1% annual management charge.

Start as Early as you Can
If your employer offers a company scheme which they pay into on your behalf, you should join it. Otherwise start a Stakeholder or a personal pension plan as soon as possible. The sooner you get started making realistic pension contributions, the more comfortable your retirement is likely to be.

The pensions world remains complex and baffling for many of us. Choosing the right pension provider, the most appropriate funds and agreeing an affordable level of contributions can be difficult to decide by yourself.

So contact us so that we can analyse your needs and advise on the most suitable products for your situation.

Bear in mind that there are over 35,000 financial products in the marketplace and we can assess your financial situation then suggest the most suitable solutions.

We will

• Explain your investment options
• Take you through the different types of pensions on offer
• Assess your attitude to risk Suggest the type of fund(s) that will suit you
• Look at your earnings, outgoings and priorities
• Indicate how much you should be putting away each month.

All the advice provided will be set against the background of your complete financial situation.