Frequently Asked Questions
1. Why take out a pension?
- 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.
- The benefit of pensions over other types of savings and investments is that they give tax relief up to your highest rate. Therefore, if you save £78 as a basic rate taxpayer, the government will increase 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 payments become a routine and are more likely to continue as you are unable to access the funds until retirement.
2. What are the options for setting aside money for retirement?
Saving some of your money in a pension scheme can deliver great tax breaks. As well as being tax efficient for new growth and income, you will get an extra 22% boost courtesy of our Government. Higher rate taxpayers can claim further tax relief through their tax return.
- Pensions work like an investment wrapper, so are similar to an ISA. The difference is in the limits and benefits. Like any investment, you will choose which funds to invest your pension pot in. Higher returns and higher risks are likely to go hand-in-hand. However, these are long-term plans, so your pension performance should smooth out fluctuations in investments.
- The downside of investing purely through a pension fund is it can restrict how and when you can access your money. Talking to a specialist retirement adviser can help you balance a pension with other more accessible investments and cash savings.
You can now invest up to 100% of your earnings, or £3,600 whichever is higher.
However, two main limits apply:
Annual Limit
If you pay in more than £225,000 (2007 / 2008 tax year) then you will have to pay tax on any payments over that amount.
Lifetime Limit
If your total fund value, including every pension you hold, is worth more than £1.65 Million (2008 / 2009 tax year) when you retire, then you will have to pay tax at a punishing 55% on any value above this lifetime limit.
Any money your employer pays into your pension will count toward these limits.
As retirement planning specialists, we can help you assess whether your pension contributions or fund/funds will be affected by these new limits.
3 . How much do you need to live a comfortable retirement?
As experienced retirement planning advisers, our guidance is designed to find the right way forward, as everyone has different plans for retirement. We can:
- Help calculate how much you realistically need to save.
- Select products that are flexible enough to adapt to your changing circumstances between now and retirement.
4. Can I choose when to retire?
Yes you can currently choose to retire from age 50 to 75. From 6 April 2010, the minimum age at which you can retire increases to 55.
5. What are the options when I retire?
At your selected pension date you will be able to use this fund to purchase a pension income for life ( referred to as an annuity), or a tax free cash sum of up to 25% of the fund and a reduced pension income.
There are also other options available at retirement if you do not need to draw your full income at that time, for example you can leave the fund invested and draw an income from it
