Retirement and Pensions Planning

Today's landscape

There are two fundamental stages to pensions. The first is the accumulation of funds for your retirement. Saving into the correct pension contract and funds is a must for any investor. Auto-enrolment, Personal Pensions, SIPPS and SSAS - where would you start your quest to save for retirement? The obligation for employers to provide a qualifying work-based pension scheme is not optional for employers.

The second stage is drawing the benefits from your retirement funds - or the "decumulation" stage. Landmark pension reforms since Spring 2014 have seen the options at retirement change dramatically for the population. Now it is possible to buy your retirement benefits without taking an annuity for example. Annuities can still have a place for some seeking a guaranteed lifetime income in retirement, but the options available to people today at retirement are enormous and very exciting. Seeking advice on the suitability of a retirement solution is imperative. Beware, some retirement solutions do not allow for a change of circumstance and are effectively binding so making an informed choice is essential.

What does your retirement look like? Do you picture yourself on a beach sipping ice-cold lemonade watching the waves lapping gently on the shore? Perhaps a round of golf at least four times per week? But what is the reality? How will you spend your retirement years? What are you looking for? It could all look very different. So when do you want to retire? Will it be full retirement or semi-retirement? Increasingly for many, retirement is not about waking up at 65 and then not working. Mixing work and pleasure is increasingly the shape of a person's retirement until the desire or physical inability stops us.

The Government has announced it will extend the working careers of both men and women. From April 2024 the following changes will be gradually implemented:

  • State pension age for men and women will increase from 65 to 66 from April 2024 to April 2026
  • State pension age for men and women will increase from 66 to 67 from April 2034 to April 2036
  • State pension age for men and women will increase from 67 to 68 from April 2044 to April 2046

The age you can claim your state pension will be determined by when you were born. Anyone born after April 1978 will not be eligible for their state pension until they are 68 years old.

Why is this? The reason is due to the extended lives we now lead and the realistic possibility of people living in excess of 30 years retired. Simple mathematics - people are living longer and hence the cost for providing the necessary income in retirement is becoming greater. It is quite possible that for some people retirement will last longer than their working lives. The first citizen on Planet Earth to live to aged 150 has apparently already been born!!

Instead of simply hoping there will be enough money in your pension arrangements, there are many options available to our clients to plan their retirement successfully.

Existing pension plans

During a working life many people will have accrued pensions with either previous employer's occupational pension schemes or through their own private pension arrangements. It is not unusual for a client to have five or six existing pension arrangements, many of which may not have been reviewed for decades or indeed at all.

But what are they worth? Where are they invested? Are they managed well by the pension fund managers or the pension scheme trustees? Are they expensive and what are the options that you have with these schemes at retirement? What risks are being taken with these pension funds? This is your money.

It can be reassuring to be told the schemes are satisfactory and they are on target to help you achieve that retirement lifestyle you were hoping for.

But what if the pensions are not efficient or cost effective? What should you do?

Over the years we have found that most clients are unaware of all the pension options available to them, both at the point of their retirement and beforehand. These can include choices around impaired life annuities, transfer values, unsecured pensions, phased retirement or open market options.

Making an informed decision about your pensions is vital.

In life, many people chase the latest rates with their savings and investments. Many will move their entire savings to another institution to gain an extra 1% return per annum. The same people can overlook what is being lost each year in their own pension funds either through higher charging contracts and/or poor fund performance. Losing 1% per annum through high charges or poor performance can lose the impact that could be gained by 1% through investment growth on their pension fund.

Suppose a £100 pension fund loses 20% in charges and fund performance - therefore the net value is £80.

For that £80 pension fund to recover to the original £100 it would have to grow by 25%.

Charges as well as fund performance should not be overlooked. It is quite easy to establish the benefits of growth on a pension fund. It is not quite so easy to see the damage caused by excessive charges.

Pensions and divorce

Today we live in a society of pace, choice and change. Sadly some choose to end their marriage and opt for divorce. Often this leads to the splitting of financial assets acquired during the marital lifetime which traditionally involves splitting the savings and the value of the matrimonial home.

Often overlooked are the assets held in pension schemes. These assets have values that can be traded or offset in the event of a divorce. It is recommended that both partners seek independent financial advice over such matters so that neither party is left unfairly disadvantaged at what can be a very difficult time.

Ashbourne Independent Financial Solutions can help your retirement planning. We offer clients an initial, no-cost, obligation-free meeting when we can sit and discuss your own retirement arrangements. Please take the opportunity to discuss your retirement plans and contact us via the "Contact Us" page. >>>

"WARNING: THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION ADVICE. NO INVESTMENT DECISION SHOULD BE TAKEN BASED UPON THE CONTENT OF THIS SITE. ALWAYS TAKE FULL ADVICE FIRST.

THE REGULATIONS GOVERNING TAX RATES AND INVESTMENTS MAY CHANGE IN THE FUTURE.

PAST PERFORMANCE OF AN INVESTMENT IS NO GUIDE TO ITS PERFORMANCE IN THE FUTURE. RISK CAN BE BROUGHT ABOUT BY PERFORMANCE OF WORLD MARKETS, INTEREST RATES, TAXES ON INCOME AND CAPITAL AND FOREIGN EXCHANGE RATES. YOU MAY NOT NECESSARILY GET BACK ANY OF THE AMOUNT YOU INVESTED. FUNDS THAT INVEST IN SMALLER COMPANIES' SHARES TAKE ON THE RISK THAT THOSE SHARES CAN BE RELATIVELY ILLIQUID; MEANING THEY ARE HARD TO TRADE, WHICH MEANS THE FUNDS THEMSELVES CARRY A HIGHER RISK."

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