Saving for Retirement.
Saving for retirement is an important element of financial planning. Whilst you work you trade your labour (and perhaps your capital if you have your own business), for an income.
Retirement means ceasing to trade your labour for an income. All being well, this should leave more time for leisure activities and having fun.
Reducing State Pension benefits, increasing longevity, and rising inflation all mean that to make this a reality it is more important than ever to save regularly.
Making use of a UK Registered Pension scheme will allow you to benefit from income tax relief at your highest marginal rate on any contributions that you make.
Basic rate taxpayers make contributions net of basic rate tax. This means that for every £8 paid, £10 is credited to your pension account on day one.
Higher rate taxpayers are also entitled to a further 20% income tax relief via the self assessment process. Higher rate taxpayers with 'relevant income' over £150,000 would not receive full higher rate tax relief.
Once inside your pension your savings benefit from a virtually tax efficient environment.
When you take benefit from your pension you are entitled to take a pension commencement lump sum of 25% of the value of your fund. This is a tax free benefit.
For many people this is the most interesting part of their pension benefits.
The remaining fund must provide you an income, which is taxable. For more information on how this is done, please see the section on Retirement Benefits.
How much income you need is up to you. Under current rules you can have up to £1,750,000 in your pension fund with no tax liability.
We are well aware at TFM that committing to meet this future need takes discipline and commitment, and that is disheartening when your pension fund does not behave as you have been led to expect.
At TFM we can help by creating a bespoke portfolio within your pension. Our objective is to ensure you have a good understating of how your pension fund will behave, and what it is capable of doing for you in future.
Over time the job of your pension portfolio will change, and so will your risk profile. To be able to provide yourself with a sufficient income in retirement it will be necessary to save throughout your working life. To gain the maximum benefit from your savings they need to produce a return above inflation. To achieve this it is necessary to bear some kind of investment risk, as your objective here is to increase your capital.
As you get nearer to retirement, your focus will probably switch to making sure that your capital is preserved. After a lifetime of hard work, we appreciate it would be very difficult indeed to watch your pension fund decimated by negative investment returns that year before you take benefits.
We know that your investment needs will change over time, and that is why TFM will undertake as part of our standard client agreement to provide regular reviews for your portfolio to make sure that it continues to meet your investment needs in the long term.
If you are risk averse, we can help you build in Unit Linked Guarantees to your plans to take some of the worry out of the process.
Retirement Benefits
The exciting part about your pension is the “getting paid” part. You will be entitled to 25% of your pension capital as a tax free lump sum.
The balance of your pension fund is there to provide you with an income. How you convert that capital into income is now a lot more flexible than it used to be, and happily there are several alternative options to the compulsory purchase annuity.
TFM is committed to providing the best solution for each individual client, as the decisions you make when taking retirement benefits are critically important in enjoying your retirement.
Please see the following documents:
Your retirement benefits summary (and table below)
Your retirement options (a full explanation)
Retirement Benefits – your options summarised
LIFETIME ANNUITY |
SCHEME PENSION |
PHASED RETIREMENT |
UNSECURED INCOME / PENSION |
ALTERNATIVELY SECURED PENSION |
THIRD WAY |
Regular and secure income for life |
Regular and secure income for life |
Part of your fund and part of your tax free cash are used in segments to provide income.. |
Tax free cash lump sum paid at outset and fund remains invested. Income can also be selected if required. |
Available at age 75 for people who do not wish to purchase an annuity. |
Tax free cash lump sum paid at outset and fund remains invested. Income can also be selected if required |
Tax free cash provided at outset and fund used to purchase an annuity paid for life. |
Tax free cash paid at outset and fund used to provide income for life. |
The balance of the fund not used for income / tax free cash remains invested with a view to providing higher future benefits. |
The balance of the fund not used for income remains invested with a view to providing higher future benefits. |
All funds which are not used to purchase an annuity at age 75 will move into ASP. |
The balance of the fund not used for income remains invested with a view to providing higher future benefits |
Your annuity income is paid at least annually and can increase or remain level in payment. |
Your annuity income is paid at least annually and can increase or remain level in payment. |
Your starting annuity is smaller, but is supplemented by a portion of your tax-free cash sum.. |
You can choose the income you want, and when you want it, between nil and 120% of an equivalent single life annuity. |
You can choose the income you want and when you want it between 55% and 90% of an equivalent single life annuity. |
You can choose the income you want, and when you want it, in line with UI – some plans offer an income ‘lock in’ guarantee. |
Additional options can be selected at outset such as annual or one off increases, spouse’s benefits or guarantees which reduce your own income. |
Additional options can be selected at outset such as annual increases, spouse’s benefits or guarantees which reduce your own income. |
Each year you decide how much fund to use for annuity purchase and how much tax free cash is used to supplement your income. |
If investments do well, you may benefit from higher future income payments, and vice versa. |
If investments do well, you may benefit from higher future income payments, and vice versa. |
If investments do well, you may benefit from higher future income payments. Some plans offer an investment growth ‘lock in’ guarantee. |
Once you have bought your annuity, you usually cannot change your mind or change benefits. On death there may also be the option of ROF |
Once you have bought your annuity, you usually cannot change your mind or change the benefits, |
Because you don’t commit all your funds to buy an annuity immediately, you keep your options open. |
On death, the remaining fund is available to pay benefits to your family or dependants. |
On death, the remaining fund is available to pay benefits to your spouse or dependants. It could also be paid to a nominated charity. |
On death, the remaining fund is available to pay benefits to your family or dependants, depending on plan type selected. |
