Retirement and Pensions Planning
Case Study: Planning, Retirement, Pensions, a Second Opinion
Chris and his wife had been “advised” by a family friend for years, until his accountant suggested that they get a second opinion upon their pensions and planning for their retirement.
After our appointment, it became clear that they had been advised badly, with a new pension fund being taken out on a regular basis, generating fat commissions for their adviser, but incurring penalties and additional costs when there was simply no good reason to do so.
After our review and analysis of each pension fund, we put a plan of action in place, with a view to improving their retirement prospects and overall wealth, with the minimum of client detriment.
Since then, they have used their pension funds to purchase a business premises, and can look forward to a very comfortable retirement.
NB. Whilst the Client names have been changed for Client privacy purposes, these case studies are actual ASPL Client case studies.
Pensions
You may have accumulated a number of different pension arrangements over the years, or be looking to begin your pension planning and looking for a suitable vehicle. These days, usually the ultimate investment choice and flexibility is provided by Self Invested Pension Plans (SIPPs). Pension plans are not the only way to save for retirement and we consider a number of options, advising our Clients.
SIPPs (Self Invested Pension Plans)
For those wanting greater control of their pension, then a SIPP is likely to be appropriate for you. SIPPs earn tax relief in the same way as normal pension funds, and usually one quarter of the value of the fund can be taken as tax-free cash from the age of 55.
SIPPs for example can invest in Bank Deposits, Bonds, Shares, Unit Investment Trusts, Open Ended Investment Companies, Exchange Traded Funds, Commercial Property, Hedge Funds, etc. These days, when you retire, you are not obliged to either buy an annuity or switch into an Income Drawdown Plan, and you can use your SIPP to manage your retirement income.
For those with pensions already in payment of a certain amount, you may be able to draw upon your entire pension fund by a single or more regular withdrawal and exhaust the entire fund. Please speak to us if this option is likely to be of interest to you.
For those who may require a more straightforward choice, you may wish to look at Stakeholder pensions or NEST.
You may also be interested in our section on Using your pension fund to buy premises
Stakeholder Pensions
Stakeholder pensions are like a personal pension but have to meet certain minimum standards to ensure that they are value for money. The Annual Management Charges are limited to 1.5% per annum for the first 10 years (and thereafter up to 1%). Like a SIPP, you can start, stop, re-start or change your contributions whenever you want, without penalty.
You get tax relief on contributions of up to 100% of your earnings each year, subject to a maximum of, currently, £50,000 for the 2011/12 tax year. Your employer may already offer you access to a Stakeholder pension scheme through the workplace. We sometimes use Stakeholder pensions for setting up children’s pensions (typically with contribution by parent or grandparent).
NEST
The National Employment Savings Trust will be introduced in the UK from October 2012.
The Government estimates that about 7 million people are currently under-saving for retirement and a major part of the Government’s pension reform ideas is to make it easier for these people to save for retirement.
From October 2012, UK employers will be required to automatically enrol employees into a “Qualifying Workplace Pension Scheme”. This auto-enrolment could be to your existing company pension scheme if it meets certain criteria, otherwise the employees will be enrolled into NEST, which aims to be a simple, low-cost pension scheme being introduced by the Government.
Between October 2012 and 2017, depending on the size of company, all UK employers will be required to contribute a minimum of 3% of each employee’s eligible earnings into a pension, assuming the employee does not “opt out”. Employees will need to pay a personal contribution of 4% with a further 1% tax-relief being added, to make the minimum contribution 8%.
Therefore NEST will become the “default” option for employees going forward.
“Company” or “Occupational” Pensions
These vary from company to company and are typically either: “salary related” – whereby the amount of pension you get is based upon your salary, the number of years you have been in the scheme, and the “accrual rate” (e.g. one sixtieth).
Money Purchase Scheme
A Money Purchase Scheme is based on how much has been paid into your scheme and the investment performance of that money.
Your employer may give you the option of diverting any employer contributions into your own personal arrangement, e.g. SIPPs or Stakeholder pensions.
We offer a company/occupational pension scheme Review service, with a view to assessing the benefit or otherwise of leaving your pension scheme where it is or transferring elsewhere.
Using your Pension Fund to buy Premises
Your old, frozen and current pension funds may be used to acquire commercial property. The idea is that the property ownership can be split between you personally and/or your business, and/or your pension funds. This therefore gives you a route to enable the purchase of the commercial premises you perhaps thought you could not afford. We could help you structure the deal so that your company ends up paying rent into your own pension fund. This is of course a complex area so please contact us for advice.
Pensions for Children/Grandchildren
Yes, this has been possible for some years now. The maximum amount you can invest is £2,808 per year (which the Government tops up to £3,600 with basic rate tax relief).
It certainly is an excellent idea to start a child early on a pension scheme, as this typically means they will have a 20, possibly 30 year head start on most of us. Please note however that this is of course a long-term investment as the funds cannot be touched by the child until they reach the minimum age of 55 under current legislation.
You are able to pay a one-off contribution or regular contributions up to £2,808 per year (2011/12).
SIPPs or Stakeholder pensions can be used for this purpose. Parents, grandparents and other relatives can contribute.
Other Savings and Investments
You don’t need to invest in a pension to save for your retirement. There are a number of tax-efficient alternatives available now that the (Stocks & Shares) ISA allowances have increased (£10,680 per person 2011/12 or £21,360 per couple per annum) an ISA investment strategy must be considered. Once ISAs are maximised, you should consider your Capital Gains Tax strategy as there is an annual exempt amount for 2011/12 of £10,600. Thereafter this tax-free annual allowance and individual’s net gains are taxed at 18% for basic rate tax-payers and 28% for higher rate earners. This currently compares very favourably with income tax rates and so must also be considered as part of a retirement planning strategy.
Thereafter there are National Savings, depending on the rates from time to time and their availability, and then there are also higher risk tax-efficient investment such as Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS), but these are not for everyone.
People
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Adrian is a Certified Financial Planner. He established Adrian Smith & Partners Ltd. in June 1999. His qualifications include Certified Financial Planner (CFP), Financial Planning Certificate (FPC), Advanced Financial Planning Certificate (AFPC), Securities Institute Foundation Certificate, Dip PFS.
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Ivan is a Certified Financial Planner and joined ASPL in 2003. His qualifications include: Certified Financial Planner (CFP), Advanced Financial Planning Certificate (AFPC), Financial Planning Certificate (FPC), G60 Pensions.
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