The world of pensions is a very complicated and an ever-changing one. There are many types of pension schemes available, all of which have their own rules and regulations.
Our financial planners are at ease in this environment and can help you to understand which pension would work for you.
With all financial planning, but particularly with regards to pension planning, it is important to get it right — failing to get the best advice could cost you thousands.
We take your personal needs into account, what you want and need out of your pension plan. We listen to find the best solution
There are broadly two types of pension, a defined contribution pension or a defined benefit (Final Salary Pension). Both have their merits and pitfalls, but understanding how these fit in with your personal circumstances is key.
A defined contribution plan is exactly what it says on the tin — you know what is going in. Within the plan you hold an investment, and this investment can rise or fall. There are many different products available in the defined contribution world, from personal pensions to SIPPs to stakeholder schemes. It is important to make sure you have the most suitable product.
These days, modern personal pensions these days can be thought of as tax-efficient bank accounts. They allow the use of the recent pension freedom rules governing how you access your pension.
On the way in, you will receive an uplift from the Government of 20% and, if you are a higher or additional rate tax-payer, you can claim more tax back via your tax return. Once your contributions are in, a suitable investment may be able to give you a return to help your fund grow. However, the investment may not perform and your fund could shrink.
Once you come to take benefits, you are able to take them how you like. 25% of the fund will be tax-free and the rest will be taxable at your marginal rate of tax at the time you take it. Careful planning is needed to ensure the plan is suitable and your withdrawals are sustainable. Growth within the investment is largely tax-free as well.
You are allowed to contribute up to £40,000 into your pot each year from all sources and receive tax relief. However, you may have a reduced annual allowance if your income is lower than this, if you are subject to the money purchase annual allowance or if you are subject to a reduced annual allowance. You can speak to one of our expert advisers to help in this area.
You may be able to use your pension as part of your inheritance planning. Funds held within your pension pot can be passed on to nominated beneficiaries free of inheritance tax and potentially free of any other taxes.
If suitable, you can transfer your defined contribution plan to another money purchase plan but appropriate independent advice should be sought from an appropriately qualified adviser.
Defined Benefit (Final Salary)
Many people have a defined benefit pension. This type of pension will give you a promised yearly income payable from the scheme’s chosen retirement date until the day that you die. The income from the plan is usually indexed so will increase each year. The income that you are paid from your retirement date is normally based on your final salary when you left the scheme — hence final salary scheme — and the amount of years you have accrued benefits within the scheme. The higher your final salary, the higher your income at retirement is.
If you have any dependants, they may be able to benefit from your pension after your death, as many of these schemes pay out a dependants’ pension in the event of your death.
It is rare these days for defined benefit schemes to be open for new members, and lots of schemes are now stopping accumulation for existing members.
If suitable, these plans can be transferred to a defined contribution plan. However, careful consideration should be taken, as such a transfer will mean the loss of valuable guarantees.
Unfortunately, the pension world is full of scams, people trying to con you out of your pension money. As a rule of thumb, if it sounds too good to be true, it probably is. If anybody tries to tell you they can get you access to your pension before the age of 55, it is probably a scam.
If you are contacted by anybody about your pension, the first thing to do is check they are on the financial services register at https://www.fca.org.uk/firms/financial-services-register.
By the way, we are all registered. See here: https://register.fca.org.uk/ShPo_FirmDetailsPage?id=001b000000MfGIBAA3
You can also call the Financial Conduct Authority on 0800 111 6768.
You can call action fraud on 0300 123 2040.
Although the above gives you an insight to the pension world, it is certainly not an exhaustive explanation. Careful consideration should be taken when assessing your pension arrangements and requirements. Independent advice should be sought from an appropriately qualified adviser. The rules are very complex and your options are not always clear. We can guide you through your options and recommend the most suitable way forward, so why not give us a call?