Pensions

At this time of year, many of us are returning from our summer holidays. I have heard retirement being referred to as “one long holiday”. Of course, one day, you’ll retire from full-time work. But have you ever wondered what type of holidays you will be able to afford when you eventually retire?

The type of holidays you’ll be able to take during retirement will depend on your financial situation at the time. It is not just about the Pensions you have built up; it’s your complete financial situation – for example, whether you have paid off your mortgage and other debts.

Planning for this time of life is essential. It’s not just about making sure you have built up enough funds, it is also about making sure that the savings you have accumulated are taking the right amount of risk.

Can you remember back to 2008? People coming up to retirement age were on the news saying that they had to delay their retirement due to the sudden drop in the value of their Pension. Whether you would be affected or not depended on what your Pension funds were invested in at the time.

We often see new clients who have very little idea about how their Pension funds are invested. Do you know what your funds are invested in? If the market were to suddenly drop, do you know how this would affect your Pension and investments?

Over the last few years the options for taking your Pension benefits have changed considerably. Do you know how you intend to take yours? Your answer will affect the risk profile your Pension should be invested in during the time leading up to you taking the benefits.

If you are coming up to retirement and planning to take your Pension, here are some more questions to ask yourself:

• How much income would you like to have coming in at retirement?
• Is your Pension on target to produce this?
• Where are your funds currently invested?
• How are the funds performing?
• What is your personal risk profile?
• Do your current investments match your risk profile?
• Is that profile appropriate for the way you envisage taking your Pension benefits?

If you are coming up to retirement, give us a call on 020 8655 8488 and we’ll help you find the right answers.

A Pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of Pension benefits available.

Pension income can also be affected by interest rates at the time you take your benefits. The tax implications of Pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

With the end of the tax year looming, you might be wondering whether you should top up your Pension(s) before the 5 April deadline. ‘Pension Freedoms’ have added to the attractiveness of Pensions as an investment. However, I meet many people who don’t understand all the benefits. This article briefly explains them.

Tax relief
While interest rates on savings are still very low, the tax relief a Pension can attract adds to its growth, making it an interesting investment to consider.

At the time of writing, higher rate tax relief is still available.

Example

If you earn £55,000 and want to make a £10,000 contribution to your Pension, you would only need to pay £8,000 yourself, with the other £2,000 being added to your contribution in the form of tax relief. (This example assumes you are making no other Pension contributions.) You could then also claim a further £2,000 tax relief via your tax assessment, meaning it has really cost you only £6,000 to put £10,000 into your Pension.

The benefits are not just for individuals. Pensions are also attractive to businesses, as they can be treated as an allowable business expense and offset against your company’s corporation tax bill.

Pensions can be valuable for inheritance tax planning too, and we find they are a vehicle that is often overlooked.

However, Pensions can also be quite complex – there are restrictions on how much you can pay in each year as well as on the total you can accumulate over the lifetime of a Pension. There are penalties if you exceed these limits so, as always, we recommend you seek professional advice…

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

A Pension is a long term investment. The fund value may fluctuate and can go down which would have an impact on the level of Pension benefits available.

Levels, bases and relief from taxation may be subject to change and the value depends on the individual circumstances of the investor.