Pensions - Quick FAQ's
What are the tax advantages of a Pension?
How much should I pay into a Pension?
What about Stakeholder Pensions?
When can I start to draw an income?
What options are available at retirement?
What options should I consider if I am retiring soon?
What should I do next if I want to invest in a Pension Plan?
What is a Personal Pension?
A personal pension plan is a tax efficient savings plan designed to provide a regular income in retirement.
How does my money grow?
Your contributions are invested in to one or more pension investment funds. In time, the value of your fund should increase until you are ready to receive your benefits, at which point you will use the accumulated fund to generate an income.
What are the tax advantages of a Pension?
One of the great advantages that Personal Pension Plans have over other types of investment, is the considerable tax concessions that your contributions and investment funds receive.
Firstly, your contributions receive tax relief based on the highest rate of tax you pay. Secondly, where the money is invested, it grows free of income and capital gains tax.
You can also protect your contributions against inflation, by having them increase year on year, or build in an option called waiver of premium, where the insurance company will waive your contributions if you are unable to work due to an accident or ill health.
How much should I pay in to a Pension?
Way back in 2001, according to a study carried out by the Association of Consulting Actuaries (ACA), workers starting a pension at age 25 should invest a minimum of 10% of their income if they want to retire with just under 2/3rds of their final wage to live on.
However, those wishing to retire early or are starting later need to invest much more.
The ACA recommended that those starting a pension at the age of 35 need to invest between 15% to 20% of their salary while those starting at age 45 need to ensure that up to 30% is invested.
The Financial Services Authority and the Association of British Insurers have devised an online pension calculator aimed at giving the public an idea of how much their pension is going to be worth in the future.
Simply click here and fill in the form with details such as your age, pension contributions and when you want to retire.
The calculator will then estimate for you how much of a monthly pension you can expect when you finally give up work.
However, it is important to remember that the calculator will only give you a rough estimate at what you may get back upon retirement.
(Money Minder is not responsible for the content of external internet sites)
What about Stakeholder Pensions?
From April 2001, as part of the restructuring of Welfare Reform, the Government introduced fundamental changes to the structure of UK pensions provision.
Stakeholder Pensions were introduced as simple, low cost pensions, designed to encourage more people to provide for their own retirement.
The Government's broad objectives were:
'Those who are able, should save what they can for their retirement.'
'The Government should support those who cannot save and regulate the pension system effectively.'
'The private sector should provide affordable and secure second pensions.'
(source: 'Partnership in Pensions' Green Paper December 1998)
When can I start to draw an income?
Under current legislation, the benefits may be taken at any time between the ages of 50 and 75, (age 55 from April 2010) unless you are in a job where it is customary for you to retire early, and you have agreement from the Inland Revenue.
What options are available at retirement?
There are a number of different options available when you come to draw your pension. They include: -
A level pension for life
A reduced pension, with a tax free lump sum
An escalating pension
A widow/ers benefit can be provided for
A number of other options are also available which can be discussed in more detail when you retire
What options should I consider if I am retiring soon?
Since April 2006, there have been significant changes in the way that people can to start to enjoy the benefits of their accumulated pension fund.
You should start investigating your retirement options at least 3 months before you are due to retire so that you have enough time to consider the pro's an con's of all of the different options available to you before making your final decision. If you would like some help, please contact us.
What should I do next if I want to invest in a Pension Plan?
If you would like to look further into investing into a Personal Pension plan, you can contact us at info@money-minder.com or call us on 0845 218 9194 between 8am and 8pm Monday to Friday and 10 am to 2pm on Saturdays when we will be happy to discuss your requirements further.
We are able to offer a full independent financial advice service and recommend appropriate solutions to your needs that will take account of your personal financial circumstances.