Introductions - Pensions have become a much talked about
subject in recent years and plenty written about them has not been good.
Changes in the tax laws and poor returns from equities as well the myriad
problems stemming from company schemes have left many people completely
disillusioned with this form of investment, often investors have turned to
the more lucrative buy to let market as a way of investing and saving for
the future. At one time the government had planned to allow investors to
place buy to let properties within a SIPP (self investment pension plan).
They then decided to change their mind and now the only property that is
allowed within in a SIPP is Commercial Property. With, property prices are
now at an all time high in Britain, interest rates are creeping up and this
now may spark a return to pension investments with the offer of “Free Money”
What ever your views on pensions as an
investments, one thing is for sure, the state pension will not provide you
with an adequate amount of money for your retirement unless of course you
have particularly low expectations. With advances in modern medicine, we are
living longer and as a consequence, we will need more and more money to keep
us through our retirement years. An informal chat with our life & pensions
and department will be able to point out the various options that are open
to you as well as the various investments that you may like to consider as
part of your financial planning. The information printed on this page is of
a general nature and does not constitute advice.
Private Pensions - These are pensions that are
arranged privately by you either directly with the pension provider or via a
Financial Advisor. The basic idea is simple you, pay the insurance company a
sum of money each month which they will invest along with tax relief
reclaimed from the government. This money is then invested for a period of
years until you reach your chosen retirement age (subject to the minimum
retirement age in force at the time). The sum of money that has accumulated
can then be paid in a number of ways. Firstly, you are free to take a cash
free lump sum (usually 25% of your pension pot). The rest is used to
purchase an annuity from an insurance company which will provide you with an
income for the rest of your life. The income from the annuity is subject to
taxation in full as earned income. If you wish to obtain an idea as to how
much annuities return, their yields are usually published in the money
sections of the quality press. You do not need to buy your annuity from your
pension provider, if you can obtain a better rate of return elsewhere, you
can do so.
In simple terms an annuity is a contract
between an individual and an insurance company whereby the insurer in return
for a lump sum of money, guarantees the purchaser an income for the rest of
his or her life. And there are various types available and a chat with a
financial advisor will be able to explain your options to you.
Company Pension Scheme - Company pension
schemes are becoming less and less popular, firstly they have received
unbelievably bad press in recent years for the way in which they have been
run and secondly, hardly anyone entering employment these days expects to
devout all of their employment years to the same employer.
Under a company pension plan, your employer
would normally deduct monies from your salary each month to pay in to the
pension scheme. When you retire, you may receive an annual amount based on a
percentage of your last annual salary or based on the amount of money you
have built up in to the fund. In some cases the money you have accumulated
is transferable to another employer’s fund, but this is becoming more
difficult as company pension plans become fewer and fewer. If you leave a
company to which you have been paying in money and your new employer does
not have a scheme, you may be able to freeze the payments or transfer the
money to a personal pension plan subject to charges being made. If you wish
you can normally make additional voluntary contributions to your employer’s
scheme if you are able to save more money. These contributions are normally
made as lump sums. Transfers of funds from company pension plans should
never be undertaken lightly, many people feel that they have received
inappropriate advise on these matters in recent years, particularly as
occupational pension schemes offer a number of benefits (such as death in
service) that are not available under the private pension plan, Always seek
professional advise relating to any pension transfer before you make any
decision.
As well as the above, part of the money
deducted from your wages each month as national insurance is paid in to the
state run pension scheme or SERPS, These payments top up your state pension
albeit in a very modest way. Many people have contracted pout of SERPS
preferring for an insurance company to receive the funds and invest the
money on their behalf. Recently the trend has reversed and many people are
opting back in to the SERP scheme. Again this is an area as to contracting
in or out needs to be discussed with an independent financial advisor so as
you can receive the correct advice to suit your personal circumstances.
When considering your pension arrangements
please remember the following.
1. We are living longer, more people wish to
receive a benefit from the state run pension scheme, it is highly unlikely
that it will provide for comfortable retirement.
2. The transfer or termination of a pension or
pension payments is a serious business, as well as discussing the matter
with the scheme representative; professional opinion should always be taken
before any changes are made.
