Pensions

 

Privately funded or company sponsored, either way we can help with your decision…

 

Retirement Planning

In the main pensions (both privately funded and company sponsored) are accepted as the tried and trusted way of funding for retired life. However, we believe that such products should not be exclusively used to achieve one’s retirement goals.

Legislative change has resulted in more transparent products which really do allow the client to feel involved in what they are contributing and the use of technology enables the client to track the value every day if they wish.

In general terms retirement planning can be broken down into pre and post retirement.

Eastern Daily Press article 29.01.13

Pre Retirement

Pre Retirement should not just mean saving into a pension. Although pension planning will form part of pre retirement there are other tax wrappers which should be considered.

Furthermore work and income situations change throughout the years so a large degree of flexibility is important to our clients.

Essentially there should be no shocks when one finishes working and this can only be achieved by a realistic understanding of what existing plans are currently on course to achieve and what the budget allows to improve upon the end result.

We look to design a tax efficient income strategy for our clients when looking forward to their retirement years. It is essential that regular reviews are built into the process.

Poor planning in this phase could mean more tax than you need to pay and a lower income than you were anticipating at a time when you are likely to need the money the most.

Post Retirement

This in some respects is the most complicated area of financial planning, but in many respects the most interesting as the client has a range of choices allowing them to take full control over the important decisions.  It is an area which Accumulate Wealth Management specialises.

A holistic approach is important.  It is essential to take into account your financial needs in retirement and consider these in conjunction with accumulated assets including all pension arrangements, part of which may be state pensions.

Accumulate Wealth Management offers an in-depth evaluation of your overall situation to then advise on the best way to take benefits from pension arrangements, taking into account individual circumstances.

The following is a brief summary of the options Accumulate Wealth Management can help with.

Annuities

Based on the current rules you can start to take an income from your pension after age 55.

Part of your pension can be taken as a lump sum, usually up to 25% of the fund. With an annuity purchase the balance (in some cases it is appropriate to not take all of the available tax free cash) is used to provide an annuity, which is provided by an insurance company. This provides a secure, regular taxable income, in exchange for your pension fund for the rest of your life. Once set up, the annuity is fixed and cannot be altered.

Key points to consider;

Different annuity companies have different annuity rates and it is rarely advantageous to remain with your current provider.  Shopping around for the best rate is essential and something Accumulate Wealth Management can help with.

There are valuable options, such as level or increasing income to provide protection against inflation, guarantee periods and protection for your spouse or civil partner. As this is a one off decision it is imperative that you receive advice to ensure that you choose the right option.

Should you smoke, or have a particular medical condition you may be able to receive a higher income from what is known as an impaired life annuity.

Annuities can also be purchased with cash rather than the proceeds from a pension. This is known as a Purchased Life Annuity. This type of annuity is tax efficient as only a proportion of the income is taxed

Income Drawdown (also known as Unsecured Pension)

Income Drawdown is also known as Unsecured Pension (USP).  It provides more flexibility, but is a higher risk alternative to an annuity.  As such Income Drawdown plans are not suitable for all clients and it is essential that advice is taken.  In general terms only clients with pension funds in excess of £100,000 should consider such a solution.

The funds remain invested and an income is drawn directly from the pension fund. This enables you to continue to benefit from investment growth.  The fund will be subject to market fluctuations as well as being exposed to inflationary risks.  In addition there are some important tax considerations.

You can vary the income from drawdown between minimum and maximum limits.

The death benefits from drawdown are also more flexible compared to an annuity.

There are different types of drawdown:

Full Drawdown means you fully crystallise your pension and take the full tax free cash at outset. Income is drawn down from the residual fund.

Phased Drawdown can be likened to a number of mini retirements spread over a period of time. The funds remain invested and are arranged in a number of segments. Each segment’s income and tax free cash is accessible in phases to suit your individual needs.

Drip-Feed Drawdown is similar to Phased Drawdown except the income and tax free cash are paid monthly as part of your income. This is particularly tax efficient because part of the income is tax free.

One advantage of utilising a Drawdown solution is that enables you to defer any decision on an annuity purchase without precluding the annuity as a longer term solution.  This compares to the annuity which offers no subsequent option of changing the solution selected at a later date.