Pensions

Save for Retirement, Long Term Investments and Tax Efficient Savings

Despite many negative views on pensions they continue to be the most tax efficient method to save for retirement for the majority of people, and should not be overlooked.

In a report published by the Office of National Statistics, which was carried out in 2006 it was found that 47% of people surveyed had no idea of what their retirement income would be. A further 19% only had a vague idea of whether they would have enough to live on in retirement.

Some believe the state will provide for them - but could you survive on £102.15 per week*? Would you want to? After working hard for 40 years, people often look forward to their retirement. To take time to do the things you didn't have time for previously, or to travel, spend money on grandchildren but would £102.15 enable you to do this?

With advances in medicine and better quality of life, life expectancy is constantly increasing. In 1917 there were only 24 telegrams sent to wish a happy 100th birthday, by 1952 this figure had increased to 255, and in 2008 The Royal Household sent 8,439**. And although living longer would lead you to believe you have more years to enjoy yourself, what would you do if you retired at 65, ran out of money at 70 but lived to age 85?

Retirement can seem like a lifetime away, but the sooner you get saving the more comfortable your retirement is likely to be. ***For example a 25 year old male saving £200 per month gross and retiring at age 65 could reasonably expect a pension of £2,000 per month. If you leave that until age 45 when retirement starts to become a priority for many, the monthly income reduces to £500 per month. Perhaps you have already accumulated pension plans whether individual or company pension schemes. Consolidating these plans can be beneficial as many can be outdated, highly charged and underperforming.

Ultimately a pension is a tax efficient savings vehicle, should be set up as soon as possible and monitored. The majority of pensions now are investment linked and growth comes from the funds and assets they invest in. As with any investment they should be reviewed to ensure they continue to meet with personal needs and objectives and are in the best possible place to benefit from any potential growth, dependent on your attitude to risk.

The alternatives frequently mentioned to a pension are "my property is my pension" or "my business is my pension". While both of these are of course long term investments they should not replace the need for a pension, and come with both pros and cons. How would you feel if you reached your desired retirement age and were unable to secure the price you wanted for your business so were forced to continue working? Or with property having become a firm favourite, were unable to either sell or let the property in what may be a difficult marketplace when you retire? The best possible course of action is to have a mix of assets to provide your retirement income, so avoiding having all of your eggs in one basket which means a pension has an important role to play.

When you are due to retire there are another set of options to consider as to how to take your private pension income. This can be confusing at best with various types of annuities available and other more flexible routes to take.

With pension schemes playing such a vital role in your financial planning and the need for these to be reviewed regularly, you would certainly want Independent Financial Advice for this type of arrangement.

To arrange a meeting to discuss this further in a no obligation consultation, please contact us on 01489 574355 or via the Contact page.