John Kelly's talks on Tax and Inheritance Tax Planning bring light relief, and possible tax relief to a problem many of us face, that can be mentally, and financially taxing.
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Retirement can mean a major change in lifestyle. It is an opportunity to explore your interests and indulge your desires but at the same time your income is likely to be smaller than before, so it is important to consider your pension options carefully to ensure you get the best from your golden age.
Pensions can be a complicated business and with your future happiness and security relying on decisions you take years beforehand, it is important to take solid, professional advice when it comes to pension planning.
Square One is a leading Sussex-based independent firm of wealth managers. Our professional team is highly experienced and fully qualified to give recommendations and guidance on pensions and related financial issues.
Types of pension
There is a wide range of pension types. Many pensioners are entitled to a state pension and you may also be entitled to one of three types of non-state pensions through your employer or a personal pension scheme:
State Pension – Your National Insurance contributions usually give you the right to a Basic State Pension once you reach retirement age, which currently stands at 65 for men and between 60 and 65 for women.
Occupational salary-related schemes - Offered by many employers, this scheme calculates your pension based on the number of years you have been part of the scheme, and your pensionable earnings.
Occupational defined contribution schemes – In this type of scheme your pension fund is built up using a combination of your contributions, your employer's contributions and investment returns. Once you retire, you can take a tax-free lump sum and use the rest to secure an income, often in the form of an annuity. The amount of pension income will depend on the contributions, the performance of the investment and the type of annuity you choose when you retire.
Personal pensions – A personal pension is a type of pension that you take out yourself if your employer does not offer a pension scheme or you are self-employed. Your pension fund is built up from your contributions, investment returns and tax relief, and the amount of your pension income will depend on your contributions, investment performance and the type of annuity you purchase. Whether you have a pension scheme with your employer or a personal pension fund, Square One can provide you with expert financial advice.
Retirement income options
Once you retire, there are various ways of converting your pension fund into a regular retirement income. Your decision will depend on the size of your pension fund and your own financial needs and circumstances. Some options are more suitable if you have a larger pension fund and are willing to take risks, while others are better for providing you with a more secure income.
● Lifetime annuities – A lifetime annuity serves to convert your pension fund into a pension income for the rest of your life. There is a wide range of annuities you can choose from, for example enhanced annuities (if you have health problems), joint life annuities (that pay out to your spouse/partner if you die), level annuities and escalating annuities. Your pension income depends on the size of your pension fund, your health, your age, your gender and the type of annuity you choose.
● Pension drawdown – If you decide not to buy an income when you retire, pension drawdow can be a good decision. After you take any tax-free cash you can either buy a short-term annuity or take a taxable income from your pension fund, while the rest remains invested. A pension drawdown is generally suitable for those who have a larger pension fund and who are willing to take some moderate risks. It provides flexibility over your pension income and means you do not have to lock yourself into an annuity while you are still young.
● Phased Retirement – Instead of buying an annuity, you can also choose phased retirement. Phased retirement allows you to retire progressively. You can use part of your pension fund to buy an annuity, then use a further portion later to buy another. Phased retirement can give you financial flexibility but it does entail higher risks than standard annuities.
Need pensions advice?
Whatever the size of your pension fund, whether you wish to buy a standard lifetime annuity or a pension drawdown, Square One can give you comprehensive financial advice.
If any of the following questions describe your situation please call or email us for solid, professional advice:
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