Retirement Planning

Planning financially for your retirement can be a daunting prospect, particularly the older you are before starting to look at your pension provision.  Aside from your pension, don’t forget that your retirement plan might include other savings and investments that you intend to use to provide additional income when you give up work.

The longer money has to grow before it is needed, the more chance it has to provide you with a greater income in retirement. Therefore, it’s better to start a pension as early as possible – you can even start a pension for your children!

However, the immediate financial pressures of life can get in the way of saving for retirement and can push retirement planning to the back of your mind (the pressures of saving for your first home or providing for a young family for instance). But even if your initial contribution is small, whatever you can put aside in the early years will be vitally important to getting your pension growing.

Personal Pensions

A personal pension may not be the most suitable method of saving for your retirement if your employer offers a company or stakeholder pension scheme, as your employer may make additional contributions to your pot.

However, if you want to make arrangements separate to your employer’s pension scheme, or you don’t have access to one (for instance if you’re self-employed) a personal pension could be for you.

Alternatively, if you want to have more control over your destiny, a Self Invested Personal Pension (SIPP) will allow you to invest in shares or all manner of other asset classes directly (such as commercial property). However, as your SIPP will normally be invested in fewer things than a normal pension fund, you should be aware that you could be shouldering a greater risk.

You should remember that as pensions are investment based, they can fall as well as rise in value. Depending on how much risk you want to take with your money, you can normally choose different funds accordingly. Generally speaking, taking a higher risk with your money is better when you are younger because as well as benefitting from larger gains, if you do make losses your pension pot will have longer to recover.

In contrast, as you approach retirement, you should move your money into safer, lower risk investments in order to protect the gains you have made over your working life. With a stakeholder pension this is done for you although holders of personal pensions would normally need to contact their pension provider to arrange this.

Taking your pension as an annuity

When you come to take your pension you have a choice: you can choose when and how you take your income (under current legislation this can be at any point after you turn 55), as well as deciding whether to take up to 25% of your pot as a tax-free lump sum.

The most common route is to opt for a pension annuity (there are other options, such as income drawdown – speak to your financial adviser if you are unsure how to take your pension income).

An annuity is a financial product that you pay a lump sum for and which, in return, pays you a guaranteed income for as long as you live. There are lots of different types of annuities: standard annuities don’t take into account things like your health, where you live, or your lifestyle, whereas other, more specialist types such as enhanced, impaired life or postcode annuities, give a more tailored retirement quote – often substantially higher than that offered normally.

Money Saving Tips in Retirement

Find out how to get the best income in retirement, just click the link for a more in-depth discussion.