Retirement Planning

The maximum UK State Pension is currently approximately a 1/3rd of the UK average annual income for full time employees and it is highly likely this ratio will continue to deteriorate in the years ahead as a direct result of our ageing population.

The State Retirement age

The State Retirement age is on the way up, people are working longer, but we can still look forward to a longer time not working than our parents and grandparents. However, unless we start taking more responsibility for our own quality of life when we do finally give up work, many of us will have a bleak financial future ahead.

We all need to start planning for our retirement as soon as we start work because the earlier we start saving the cheaper the costs in the long term. It is not easy when you have so many day to day financial commitments, but even a modest amount of savings in your twenties and thirties can make a significant difference to your quality of life in retirement.

Retirement Planning

Do you have clear income goals for your retirement? Do you have a clear strategy for achieving these goals? Do you know how much you need to save to fund your goals?

BLG Wealth work closely together with you to identify both your likely sources of income and anticipated future retirement expenses before agreeing a strategy to help you achieve your retirement goals. We regularly review and tweak this strategy to ensure it keeps on track and to take into account any changes to your current situation.

The State Pension alone will be unable to provide you with the same standard of living when you retire as you were enjoying when you working. We all understand the UK has an ageing population and with the States resources being ever stretched this situation is unlikely to change for the better.

Therefore, it is ever more important for people to take responsibility for their own retirement and contributing a little to their own pension plan is a great way to start.

The State Pension is a regular payment made by the Government to people who have paid or been credited with sufficient Class 1, 2 or 3 National Insurance Contributions and have also reached State Pension age.

To be entitled to the full State Pension, it is necessary to have a minimum 30 ‘qualifying years’ of NICs or credits or 35 ‘qualifying years’ for the New State Pension. A qualifying year is a tax year in which the claimant has paid or been treated as having paid or has been credited with sufficient NICs to make that year qualify in State Pension calculation terms. Each qualifying year entitles the claimant to 1/30 of the full State Pension or 1/35 of the full New State Pension. Depending on the claimant’s age, it may be possible to pay voluntary NICs to bridge some or all of the gaps in his or her National Insurance record over the past six years or beyond.

Currently, the State Pension age is between 65 and 66 for men and women, depending on the date of birth. By October 2020, the State Pension age for men and women will be 66, increasing to age 67 between 2026 and 2028.

The State Pension is not paid automatically and must be claimed by the individual. It is usually paid, directly into the claimant’s bank account, four weekly in arrears.

Although the State Pension can be claimed while living outside of the UK, it will only be increased each year if the claimant lives in the EEA, Switzerland, Gibraltar or in a country which has a social security agreement with the UK.

NOTE: There are currently two State Pension systems with each having different rules.

State Pension: claimants reaching State Pension age prior to 5th April 2016

Rules only apply to:

  • women born before 6 April 1953
  • men born before 6 April 1951

Maximum payment

For the financial year 2018/2019, the full rate of benefit is £125.95 per week (£6,549.40 pa)

This payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%

State Pension: claimants reaching State Pension age after 5 April 2016

Rules only apply to:

  • women born on or after 6 April 1953
  • men born on or after 6 April 1951

Maximum payment

For the financial year 2018/2019, the full rate of benefit is £164.35 per week (£8,546.20)

Again, this a payment is increased every year by whichever of the following three percentages is the highest:

  • the average percentage growth in wages in Great Britain
  • the percentage growth in the Consumer Price Index
  • 2.5%

If you already contributing to your own personal pension plan or through an employed scheme you are taking a big step forward to securing a better standard of living in retirement than otherwise would be the case.

However, understanding how much these contributions, if maintained until retirement, might meet your retirement aspirations is crucially important. Indeed, you may have contributed to other pension schemes which you have forgotten, or have not thought of as being particularly important. These all play a significant part In securing an improved quality of life when it really matters.

Therefore, it is very important to review the benefits of the scheme and how this correlates with your personal retirement plan to keep it on track. The sooner any tweaks are made the less costly it will be in the future.

At BLG Wealth we regularly assess your retirement plans to ensure we work together to meet your financial goals.

What type of pension scheme

In this instance, the employer takes responsibility for including you within the company pension scheme. On pay day the employer deducts a percentage of the employees remuneration to invest in the pension scheme. This will then be topped up by both employer contributions and contributions from the government in the form of tax relief.

Auto Enrolment has recently been introduced to ensure that every UK employer with a minimum of one employee has to enrol them within a company pension scheme. This only applies to employees earning in excess of £10,000pa and aged between 22 and State Pension age.

Personal Pension Plans are available for all UK residents aged between 16 and 75. You choose your own pension provider(s), which can be more than one, and make the arrangements for the contribution payments. Your money is invested by the pension provider, usually an insurance company, to accumulate your pension fund for the future.

You can pay into a Personal Pension if you are self-employed, you already have a workplace pension and even if you are not working. You can also provide one for your spouse/partner or your child/children.

A great benefit of pension contributions is they attract tax relief. If you are a basic tax payer, your pension provider will claim back tax relief at the basic rate of 20% of your contributions and add this to your pension fund. If you are a higher rate taxpayer then you can claim the additional relief through your tax return.

Another important benefit of Personal Pensions is you can take as a lump sum, 25% of your pension fund tax free when you reach the age of 55. Subsequent withdrawals are taxed as earned income.

Note: You do not have to give up work to take the proceeds from your Personal Pension

A SSAS is essentially a company pension scheme for Directors and Key Employees.

Although a SSAS will adhere to the standard company pension scheme rules they have considerably more choice and control over both the investment philosophy and assets.

Key Benefits

  • Members’ personal contributions normally attract tax relief
  • 25% of the pension fund can be taken from age 55 free of tax
  • Investments, other than dividend income, grow free from both UK capital gains tax and income tax
  • Flexible retirement options enable retirement income to be phased over a period of time
  • Death benefits can normally be paid before age 75 without any Inheritance Tax liability

A SIPP is suitable for investors who would like more control over their pension fund without solely relying on one pension fund provider. However, a SIPP does require active management and therefore an understanding of investment management and strategies.

Key Benefits

  • Investment flexibility
  • Tax Efficient Savings
  • Control
  • Flexible contributions
  • Flexible retirement options

A SIPP investor will have a much wider range of assets to consider and their selection will be dependent on their personal needs. These would include:

  • Property, not residential, and land insurance bonds
  • UK and overseas equities
  • Unlisted shares
  • Investment trusts
  • OEICs and unit trusts

To optimise your prospects of enjoying a happy and prosperous retirement speak with BLG Wealth.

Benefits on Retirement

An annuity is a pension investment that guarantees to pay a secure income for the rest of your life, no matter how long you live. In the UK there are basically two types of annuities: pension annuities (compulsory purchase) and purchased life annuities (voluntary purchase).

However, until recently, most people had used their accumulated pension fund to purchase an annuity for the purposes of guaranteeing an income for life. However, in April 2015, new legislation was introduced to give people greater access to their pension funds. The impact of this new legislation has been to significantly dilute the interest in using the proceeds of your pension fund to purchase an annuity.

The key change has been that prior to the 2015 legislation savers could take 25% of their pension fund as a tax-free lump sum and any further lump sum withdrawals would incur a punitive 55% tax charge. However, since the 2015 legislation, although savers can still withdraw 25% of their pension fund tax free further withdrawals can be taken at the individuals marginal tax rate which in most instances will be 20%.

Annuity rates vary considerably and it is important to shop around to get the best rates. The following factors have a considerable influence on the amount of income you will receive:

  • Annuity provider – which may not be the same as the company who has managed your pension fund
  • Interest rates – which depends on interest rates at the time of purchase ie the lower the interest rates the lower your income annuity
  • Age – the older you are when you purchase the annuity, the higher the annuity income as the provider will not expect to be making payments for as long as younger lives
  • Health: those in poorer health can receive a higher payment with an enhanced or impaired life annuity which would include smokers, receive regular medication or have an existing medical condition

The recent introduction of new legislation relating to Income Drawdown allows those with a defined contribution pension scheme and are aged 55 or over to use the income drawdown option to provide their retirement income.

Income Drawdown provides an attractive alternative to purchasing an Income Annuity on retirement. Instead you will draw your income directly from the pension fund whilst the rest is left invested. As the pension fund remains invested the fund can still benefit from any growth or otherwise in the value of its investments. Also, the new legislation allows you take the amount of income you would like and even the entire pension fund if you want.

It is important to note that, unlike an annuity, if you select the Income Drawdown option you retain control of your pension fund.

Although Income Drawdown products look attractive there is the potential danger that through poor investment choices or excessive withdrawals from the pension fund your pension fund may run out of money long before death. To optimise your prospects of enjoying a happy and prosperous retirement speak with BLG Wealth.

The value of investments and the income from them may go down. You may not get back the original amount invested.

The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

This information does not represent financial advice and is not suitable for everyone – therefore if you have any questions as to its suitability for you, you should seek financial advice.

Tax treatment is based on individual circumstances and may be subject to change in the future.

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