A Guide To Retirement Planning Spreads

A Guide to

Retirement
Planning
Developing strategies to accumulate wealth
in order for you to enjoy your retirement years

Welcome CONTENTS

Contents
04 Expected
retirement incomes 16 Is it time to get
more flexible with
hit five-year low your money?

A Guide to
Taking some practical steps now could Remove the cap on the retirement
mean a more comfortable retirement income you can take

Retirement Planning 06 Different types of
occupational pensions
Most employers are required to offer
17 Self-Invested
Personal Pensions
Taking more control over your
their employees the chance to join a pension fund investment decisions
Welcome to ‘A Guide to Retirement Planning’. The State Pension alone pension scheme
won’t be enough to ensure a comfortable retirement so it’s worth
reviewing your options as soon as you can to make sure you can afford
08 Enrolling workers into 18 Helping you maximise
your retirement income
life’s little pleasures once you retire. a workplace pension Why your annuity will have to last
When it comes to planning for retirement, time is your friend. A good Saving for your retirement arranged you for longer
retirement investment strategy starts with a longer-term approach. This through your employer
usually begins with more adventurous investing to build growth and then
moves into less risky options to safeguard that growth as the planning
10 Tax relief on pension 20 Getting the best
annuity
nears its end. contributions How to substantially increase your
Ideally saving should start as early as you can. However it’s never too Encouraging people to invest more pension income
late to start and the earlier you start the greater the benefits. People don’t towards their retirement
start out planning to fail, but many do fail to plan.
Retirement is something we all look forward to and, even if it seems
a long way off, the crucial question is ‘Do you have enough saved for a
Want to discover
what the future 12 Saving for your
retirement
21 Tracing a personal or
occupational pension
scheme
comfortable retirement?’ will look like? The sooner you start saving for your It can be easy to lose track of a
Wherever you are with your retirement savings, don’t be put off from retirement the more secure your pension if you change jobs through
taking action – there are still steps you could take to increase the income Even if your retirement planning is up future will be your working life
you’ll get when you retire. and running, that’s not the end of the

22
story. It’s important that you review
We can work with you to develop strategies to accumulate wealth in
order for you to enjoy your retirement years, by evaluating your goals, your contributions, particularly if you
have a change of circumstances. If
13 Personal pension plans
Providing retirement benefits based on
Pension consolidation
Bringing your pensions under
personal circumstances and projected living costs. the accumulation of a ‘pot’ of money one roof
you don’t know how your planning
is doing, you can’t know what your
Set clear goals for your retirement Take control
of your existing retirement savings Maximise future will look like. To discuss how
we could help you plan for your
14 Changes to State
Pension age
your use of generous tax allowances Tailor an Helping to manage the cost of
investment strategy appropriate to your needs retirement, please contact us for State Pensions because of increasing
Maximise your post-tax income in retirement further information. life expectancy
Adapt to changing circumstances

02 A Guide to Retirement Planning A Guide to Retirement Planning 03

A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING

By taking some practical steps
now, workers and imminent
retirees could ensure a more
comfortable retirement. For those who
are still working, it has never been a
more important time to
save into a pension.

Expected retirement
incomes hit five-year low
Taking some practical steps now could mean a more comfortable retirement

People retiring in 2012 expect to live on financially comfortable compared It is concerning that expected
an average annual income of £15,500 – with 31 per cent of women. However, retirement incomes are going down,
over £1,000 a year less (6 per cent) than nearly one in five (18 per cent) of those while pensioner expenditure is going up.
those who retired in 2011. The figures planning to retire in 2012 have no idea However, by taking some practical steps
come from Prudential’s unique Class of of the level of income they will need in now, workers and imminent retirees
2012 research, which provides insights order to live comfortably. could ensure a more comfortable
into the financial expectations of Britons retirement. For those who are still
planning to retire in the next 12 months. As a sign of the working, it has never been a more
ongoing financial important time to save into a pension.
Expected annual challenges facing those
retirement incomes However, even if you are due to
The results of Prudential’s annual survey,
due to retire in 2012, one retire this year, you could still make
first carried out in 2008, show that in five will get by on an your retirement funds generate
expected annual retirement incomes expected annual income better incomes.
have dropped by more than 16 per cent
of less than £10,000.
in the last five years. The Class of 2008
retirees looked forward to a total annual
Fewer than two in five Need ideas about saving
income, including private, company (37 per cent) of the Class for your retirement?
and State pensions, of approximately of 2012 say that they
£18,600 – £3,100 a year more than those To discuss how we could help you to make
have saved enough to more informed pension saving and retirement
planning to retire this year.
secure a comfortable income decisions, please contact us.
As a sign of the ongoing financial retirement.
challenges facing those due to retire
in 2012, one in five will get by on an Source – Online survey conducted by
expected annual income of less than Research Plus on behalf of Prudential
£10,000. Fewer than two in five (37 The perfect storm between 2 and 12 December 2011
per cent) of the Class of 2012 say that The current economic climate has among 9,614 UK non-retired adults
they have saved enough to secure a created the perfect storm for people in aged 45+, including 1,003 retiring in
comfortable retirement. the run-up to retirement. The impact 2012. All retirement income figures
of the credit crunch, banking crisis, within this release are rounded to the
Gender difference recession and concerns over the nearest hundred.
Men are more optimistic about their Eurozone has been reflected in the fact
retirement than women, with 45 per that expected retirement income levels
cent of men confident they will be have hit a five-year low.



One of the ways in which you
can top up your occupational
pension scheme is by paying into an
AVC run by your employer,
if they offer this option.

Different types of
occupational pensions
Most employers are required to offer their employees
the chance to join a pension scheme
There are different types and reduced administration costs. Your Types of AVC include:
of occupational pensions employer doesn’t have to contribute
that are available. towards the scheme, but might agree Added years AVC
to do so. This only applies to final salary (defined
Types of benefit) schemes. Contributions are
occupational pension Pension contributions made by you used to buy ‘added years’ to increase
Final salary (defined benefit) schemes and, your employer, go into the fund the number of years of service in your
These are also known as defined benefit each month. When you retire you can main scheme.
schemes as they guarantee a set level of take a tax-free lump sum from the fund
pension when you retire. Your pension and use the rest to buy an annuity, In-house AVC
is based on an annual multiple of your which will provide a regular income for This is run through your employer’s
pay and length of time in the scheme – the rest of your life. occupational scheme. Your employer
typically one-60th of your final salary bears the administrative costs, meaning
for every year of service. You should be able to consolidate your that topping up this way is likely to be
money purchase pension plan to a new cheaper for you than topping up your
Final salary schemes are expensive employer’s scheme, and should always pension by other means.
and risky for the employer, who has to obtain professional advice to see if this
invest to fund the sums promised to is the best option for you. Matched AVCs
each employer. They are gradually being These apply to defined contribution/
replaced by money purchase plans, Stakeholder money purchase schemes. The major
which hold more risk for the employee. pension schemes incentive to buy matched AVCs is that
If your employer has five or more the employer will match the employee’s
Money purchase (defined employees, and doesn’t offer an contribution to a defined level, for
contribution) schemes occupational or group pension plan to example; an employer could pay 1 per
Contributions are normally made by which they contribute at least 3 per cent for every 1 per cent an employee
you and your employer. The size of your cent of your pay, they must offer a pays, up to a specified maximum.
pension pot will depend on how much workplace stakeholder scheme. Your
has been contributed, the performance employer doesn’t have to contribute, Bolt-in schemes
of the underlying investment funds and but may agree to do so. In-house schemes in which employees
how long it’s been invested. bear the administrative cost.
Additional Voluntary
Group personal Contributions (AVCs) Money purchase AVC
pension plans One of the ways in which you can top You make the contributions that build
An employer sets up a number of up your occupational pension scheme up your pension fund and bear the
personal pensions for employees, in is by paying into an AVC run by your administrative costs. Your employer
order to achieve economies of scale employer, if they offer this option. may agree to match your contributions.



Enrolling workers into
a workplace pension scheme, you may be entitled to your
employer’s contribution. Your employer
will let you know if this is the case.
your earnings. Your employer will let you
know what these are. The government
has set minimum amounts for defined
These minimum percentages do
not apply to all of your salary.
They apply to what you earn over a
Saving for your retirement arranged through your employer contribution pension schemes. minimum amount (currently £5,035)
What employers can up to a maximum limit (currently
Starting from October 2012, some when you retire, you may want to consider employers will follow sometime after this, choose to do Minimum that has to be £33,540). This is sometimes called
employers will have to enrol workers contributing to a workplace pension. over several years. Your employer will give Employers are allowed to delay the date contributed in total ‘qualifying earnings.’
into a workplace pension, if they meet The full basic State Pension in 2012/13 is you the exact date nearer the time. they enrol you into a pension, by up to The government has set a minimum
certain criteria. £107.45 per week for a single person. three months from the deadline given to percentage that has to be contributed So for example, for someone who
If you’re being automatically enrolled, them by the government. into your workplace pension in total. It earns £18,000 a year, the minimum
Workplace The government is getting employers to your employer must let you know in is made up of your contribution, your percentages are calculated on the
pension – what it is? enrol their workers automatically into writing: If the pension is a defined benefit or employer’s contribution and the tax difference between £18,000 and £5,035,
A workplace pension is a way of saving a workplace pension so it’s easier for hybrid pension scheme, and you have relief, added together. The minimum will which is £12,965.
for your retirement arranged through people to start saving. n he date of your enrolment
T an existing right to join your employer’s start at two per cent and increase to
your employer. n he pension scheme you will be
T pension, your employer can delay eight per cent over the next few years. Contribute more
Benefits of staying in a enrolled into enrolling you for several years. than the minimum
How this could affect you workplace pension n ow much will go into your pension
H Minimum that has to Your employer can choose to pay more
Your employer will enrol you into a A pension is a way of saving money to (as a percentage of your salary or as If your employer does delay, they have be contributed by into your workplace pension than the
workplace pension if you: provide you with an income when you an amount) to let you know in writing. If you want your employer minimum required. If so, you can choose
retire. There are many benefits to having n ow you can opt out of the pension,
H to join your workplace pension in the As part of the overall percentage, the to reduce your own contribution. But
n A
re not already in a pension at work a pension at work. if you want to meantime, your employer must accept government has also set a minimum the overall contribution must still meet
n A
re aged 22 or over your request. percentage that has to be contributed at least the minimum level set by the
n A
re under State Pension age Your employer will pay into it. This Your employer must also: by your employer. This will start at one government. You can also choose to
n Earn more than £7,475.00 a year contribution from your employer Salary sacrifice per cent and increase to three per cent increase your contribution.
n W
ork in the UK means your pension can build up more n ccept your request to join their
A Employers can use ‘salary sacrifice’. over the next few years.
quickly than if you were saving for your workplace pension, if you have This is an arrangement that must be
Your employer will write to you to retirement on your own. previously opted out or stopped agreed between you and your employer.
explain how the changes affect you. You paying - your employer must accept You give up part of your pay and your
can choose to opt out of this pension, The government will also pay into it, in your request once in a 12 month employer pays this amount into your
if you want to. But if you stay in you’ll the form of tax relief. This means some period but can choose to accept pension pot instead. It is also known as
have your own pension, which you of the money you earn, instead of going further requests if they want to ‘salary exchange’ or ‘SMART scheme.’
get when you retire. If you’re already to the government as income tax, now n Enrol you back into the pension at
in a pension at work and it meets the goes into your pension instead. regular intervals (usually every three What employers can’t do
government’s new standards, this will years), if you meet the eligibility criteria
not affect you. Your workplace pension belongs to and aren’t in a workplace pension The new law states certain things
you, even if you leave your employer n ay your full contributions on time, to
P employers cannot do. The employer can’t:
When this is happening in the future. As your employer will whoever runs your pension scheme
When you will be enrolled depends on automatically enrol you into this pension, n Offer incentives to workers to opt out
the size of the organisation you work it’s a simple way of saving while you earn. If you’re already in a workplace of their workplace pension
for. Very large employers are doing it pension, your employer must confirm n Offer incentives to workers during
first, in late 2012 and early 2013. Other Being in a workplace pension is an in writing that the pension meets the recruitment or imply that a worker
employers will follow sometime after this, important step towards giving yourself government’s new standards. can only be employed if they opt out
over several years. Your employer will the lifestyle you would like in later life. of their workplace pension
give you the exact date nearer the time. If you’re not being enrolled and you’re n Unfairly dismiss a worker because
What employers not already in a workplace pension, they stay in their workplace pension
Why this is happening must do by law your employer must:
People are living longer. You could be Your employer must let you know in writing Minimum amount that
retired for twenty years and you need to if you’re being enrolled into a workplace n Explain in writing that you have a has to be paid in to your
think about how you’ll fund it. pension or not. When you’ll be enrolled right to join a workplace pension workplace pension
depends on the size of the organisation you n Explain to you how you can join The amounts paid in by you, your
The State Pension is a foundation for your work for. Very large employers are doing employer and the government (tax relief),
retirement. But if you want to have more it first, in late 2012 and early 2013. Other If you ask your employer to join a pension are usually calculated as a percentage of



T relief on
ax
pension contributions
Encouraging people to invest more towards their retirement they’ve got no income, you can pay in is not applicable in the tax year that
up to £2,880 a year - which becomes retirement benefits are drawn.
The aim of tax relief is to encourage basic rate tax payer puts into a pension 1988 - don’t offer a ‘relief at source’ £3,600 with tax relief.
people to invest more towards their scheme, the government pays £20. scheme whereby they claim back tax Other pension
retirement and rely less on the state for at the basic rate. Instead you’ll need to If the pension scheme rules allow it you tax advantages
income after they stop working. Those Even those who don’t pay tax but are claim the tax relief you’re due through may also be able to put money into The pension fund doesn’t pay
who receive below a certain threshold still contributing to a pension (maybe your tax return, or if you don’t complete someone else’s occupational or public tax on any capital gains or
in pension income – currently £137.35 because their partner is providing the a tax return by telephoning or writing to service scheme. You’ll not get tax relief investment income.
if you are single or £209.70 if you have money) can still receive tax relief at 20 HM Revenue Customs (HMRC). on your contribution but the other person
a partner – receive a top up through a per cent on contributions up to £2,880 can get relief either through their tax Also, when your pension matures
means-tested benefit called pension a year: the government tops this amount Effect of pension return or by making a claim to HMRC. you can take up to 25 per cent of it
credit. The more people that save for up to a total of £3,600. contributions on age- as a tax-free lump sum, provided your
themselves, the fewer who will need to related allowances Limits on tax relief pension scheme rules allow it, and your
claim pension credit. If you are a higher rate tax payer, you If you receive an age-related Personal You can save as much as you like into total savings are within the ‘Lifetime
can claim additional tax relief through Allowance or Married Couple’s any number and type of registered Allowance’ for the year in which you take
How tax relief on pension your Self assessment return. The relief Allowance HMRC will subtract the pension schemes and receive tax relief your benefit.
contributions works ranges from 1 per cent to 20 per cent amount you contribute plus the basic on contributions of up to 100 per cent of
The way you receive tax relief on pension more, depending on how much you earn rate tax from your total income and use your earnings (salary and other earned For 2012/13, the Lifetime Allowance
contributions depends on whether you above the higher rate tax band and how the reduced figure to work out the value income) each year, provided you paid the for pension savings for individuals was
pay into an occupational, public service much you contribute to your pension. If of your allowances. This may have the contribution before age 75. reduced to £1.5 million. The Lifetime
or personal pension scheme. some of your contribution comes from effect of increasing these allowances Allowance is the maximum amount of
earnings that have been taxed at 40 per if your income was above the relevant But the amount you save each year pension and/or lump sum that you can get
Occupational or public cent, then you will get 40 per cent tax ‘income limit’ that applies. toward a pension from which you from your pension schemes that benefit
service pension schemes relief. But if some comes from the 20 benefit from tax relief is subject to an from tax relief.
Usually your employer takes the per cent tax band, you will get the lower What happens ‘Annual Allowance.’
pension contributions from your pay rate of relief on that part. if you don’t pay tax? There is no limit on the amount of
before deducting tax (but not National If you don’t pay tax you can still pay into Annual Allowance benefits that your pension scheme can
Insurance contributions). You only pay Likewise, the highest rate taxpayers who a personal pension scheme and benefit For money purchase schemes, it’s the pay you. However, if your pension scheme
tax on what’s left. So whether you pay pay 50 per cent income tax on the top from basic rate tax relief (20 per cent) limit on how much can be paid by in total gives you benefits of more than your
tax at basic, higher or additional rate you slice of their earnings – anything over on the first £2,880 a year you put in. by you and your employer in a tax year Lifetime Allowance you will pay an extra
receive the full relief straightaway. £150,000 – can benefit from between 1 per In practice this means that if you pay tax charge on the amount over your
cent and 30 per cent additional tax relief. £2,880 the government will top up your For final salary and career Lifetime Allowance. This tax charge is
If you’re a GP or dentist and contribute contribution to make it £3,600. average schemes, the limit is on the value called the Lifetime Allowance charge.
to a public service scheme you are You can put 100 per cent of your annual of the increase in your pension built up in
taxed as self-employed for part of earnings in a pension if you can afford There is no tax relief a tax year When your pension
your earnings so should claim tax relief it, and will receive tax relief on up to for contributions above matures you can take up
through your Self assessment tax return. £50,000 of contributions in the current this amount The Annual Allowance
tax year, meaning someone earning Tax relief if you put money into someone for the tax year to 25 per cent of it as a tax-
Personal pension plans £200,000 would receive £25,000 from else’s pension scheme 2012/13 is £50,000. free lump sum, provided your
Every pound you pay into a private the government towards their pension. Contributions paid in excess of the pension scheme rules allow
personal pension scheme is matched You can put money into someone allowance or the value of pensions that
it, and your total savings are
with tax relief by the government – Retirement annuities else’s personal pension - like your accrue in excess of the allowance give
effectively any Income Tax you have paid Unlike personal pension providers, most husband, wife, civil partner, child or rise to a tax charge at the individual’s
within the ‘Lifetime Allowance’
on that pound is paid into your pension retirement annuity providers - personal grandchild’s. They’ll get tax relief own marginal rate. for the year in which you
fund. This means that for every £80 a pension schemes set up before July won’t affect your own tax bill. If For each scheme, the Annual Allowance take your benefit.



Personal pension plans
Providing retirement benefits based on the accumulation of a ‘pot’ of money

Saving for
A personal pension plan is a type fund can be used to buy an annuity with
of defined contribution arrangement. an insurance company.
This scheme provides retirement
benefits based on the accumulation of Would a personal pension
a ‘pot’ of money, accumulated through plan be good for you?

your retirement
the investment of contributions paid by Your decision will largely depend on
both the employee and the employer. how much you can afford to save for
It is essentially an investment policy your pension and how much you will
that provides an income in retirement. get from other pensions.
It is available to any UK resident who is
under 75 years of age. Personal pension plans may be suitable for:

The sooner you start saving for your retirement
The policyholder contributes to the plan, n eople who are self-employed
P
the more secure your future will be the money is invested and a fund is built up. n eople who are not working but can
P
afford to pay for a pension
Saving for your retirement may not seem For women born after 5 April 1950 but The amount of pension payable when the n Employees whose employer does not
important when you’re starting out. But the before 6 December 1953, their State Pension policyholder retires is dependent upon: offer an occupational pension scheme
sooner you start saving for your retirement age is between 60 and 65. n Employees who have the option to
the more secure your future will be. n he amount of money paid
T pay into an occupational pension, but
Increase in State into the scheme choose not to
Having a personal or Pension age to 66 n ow well the investment
H n Employees on a moderate income
occupational pension Under the Pensions Act 2011 women’s State funds perform who wish to top up the money
The sooner you start putting money into Pension age will increase more quickly to n he ‘annuity rate’ at the date of
T they would get from an
Saving for your
your own personal or occupational pension, 65 between April 2016 and November 2018. retirement (an annuity rate is the occupational pension
the more time you have for it to build up. From December 2018 the State Pension retirement may factor used to convert the ‘pot of
age for both men and women will start to not seem important money’ into a pension) A personal pension plan may
When planning your retirement there are increase to reach 66 in October 2020. when you’re starting not be the best choice if:
three main types of pension you need to The policyholder can retire at n Your employer offers an occupational
out. But the sooner you
consider. These are State Pensions, personal These changes affect you if you’re: any age after 55 (subject to plan pension scheme
pensions and occupational pensions. start saving for your restrictions). When the policyholder does n Your employer offers access to a
n woman born on or after 6 April 1953
A retirement the more retire, they can generally take up to 25 stakeholder pension scheme,
State Pension n man born on or after 6 December 1953
A secure your future per cent of the value of their fund as a with an employer contribution
The Sate Pension is paid to those who are tax-free lump sum. The remainder of the
will be.
eligible, over State Pension age and who The current law already provides for the
have claimed it. You may be eligible for the State Pension age to increase to:
following types of State Pension:
There are a number of rules that can
n 7 between 2034 and 2036
6
influence your retirement planning. To
Basic State Pension n 8 between 2044 and 2046
6
discover how we could help you save
Additional State Pension
for your retirement please contact us
For men born before 6 December 1953, the
for further information.
current State Pension age is 65.



Changes to
How much is the basic State Pension?

The following table gives a simple overview of the
maximum basic State Pension you may receive.

State Pension age
Circumstances Basic State Pension
rate per week, for 2012/13

Single man or woman £107.45

Married man or woman or civil partner £107.45

Helping to manage the cost of State Pensions (who qualify with their own National
Insurance contributions)
because of increasing life expectancy Married man, woman or civil partner £64.40
(using his wife’s, her husband’s or their
In his Autumn Statement, on Under the announcement these people In 2012/13, you need to have £5,564 or civil partner’s National Insurance
29 November 2011, the Chancellor of the will now have a State Pension age of 67. more of such earnings if: contributions record)
Exchequer, George Osborne announced
that the State Pension age will now Changes to State Pension n You’re an employee
increase to 67 between 2026 and 2028. age beyond 67 n You’re paying National Date of birth Approximate State Pension age
The government said it took this decision State Pension age is planned to start to Insurance Contributions as a 6 April 1960 to 5 May 1960 66 years and 1 month
because of increasing life expectancy, to increase to 68 from 2044 and this would self-employed person 6 May 1960 to 5 June 1960 66 years and 2 months
help manage the cost of State Pensions. If affect anyone born after 5 April 1977. 6 June 1960 to 5 July 1960 66 years and 3 months
you were born in the 1960s, find out how How many qualifying 6 July 1960 to 5 August 1960 66 years and 4 months
you could be affected. The government is considering how the State years do you need? 6 August 1960 to 5 September 1960 66 years and 5 months
Pension age could better reflect changes in 6 September 1960 to 5 October 1960 66 years and 6 months
Under current legislation, State Pension life expectancy in the future. This is likely to n he number of qualifying years you
T 6 October 1960 to 5 November 1960 66 years and 7 months
age is planned to increase to: mean that the existing timetable to increase need for a full basic State Pension 6 November 1960 to 5 December 1960 66 years and 8 months
State Pension age to 68 will be revised. depends on your age and whether 6 December 1960 to 5 January 1961 66 years and 9 months
n 6 between November 2018 and
6 you’re a man or a woman 6 January 1961 to 5 February 1961 66 years and 10 months
October 2020 Basic State Pension n Men born before 6 April 1945 usually 6 February 1961 to 5 March 1961 66 years and 11 months
6 - what is it? need 44 qualifying years 6 March 1961 to 5 April 1969 67 years
6 Anyone who has enough qualifying n omen born before 6 April 1950
W
years from their National Insurance (NI) usually need 39 qualifying years
The government has announced that the contributions record is entitled to some n Men born on or after 6 April 1945 need n Looking after children under 12 years When entitlement to the additional If you were contracted out through one
increase to 67 will now take place between basic State Pension. You can receive 30 qualifying years old and claiming Child Benefit pension is calculated, the earnings on of these schemes on 6 April 2012, you
2026 and 2028. a basic State Pension based on the n omen born on or after 6 April 1950
W n Caring for a sick or disabled person which it is based are revalued in line with will have automatically been brought
qualifying years of National Insurance need 30 qualifying years for more than 20 hours a week and the growth in average earnings. back into the additional State Pension.
This change to the timetable is not yet law contributions (NICs) you have. claiming Carer’s Credit You’ll have commenced building up
and will require the approval of Parliament. Additional State Pension n registered foster carer and claiming
A Contracting out the additional State Pension from this time.
When can you get a basic An additional State Pension can give you Carer’s Credit additional State Pension
Who is affected by State Pension? extra money on top of your basic State n eceiving certain other benefits due to
R If you’re an employee with annual If you are already
the announcement? State Pension age is the earliest you Pension. It is also sometimes called the illness or disability earnings above a certain amount (£5,564 contracted out
This will mean that people born after 5 can get a basic State Pension. You have State Second Pension (it used to be called in 2012/13) - you may be able to choose If you are already contracted out through
April 1961 but before 6 April 1969 will have to claim it. You can also choose to put the State Earnings Related Pension Scheme If you’re employed and have a pension to leave the additional State Pension. either type of scheme, you will:
a State Pension age of 67. off claiming (defer) and take your State (SERPS)). You may be entitled to additional then you may be ‘contracted out’
Pension later. If you choose to defer you State Pension if you’re employed, looking of the additional State Pension. Changes to contracted Be able to continue to make your own
People born after 5 April 1960 but before could receive an extra State Pension or a after a child or caring for someone. This means you’re unlikely to be out pensions from 2012 contributions to the scheme
6 April 1961 will reach State Pension age lump-sum payment as well as your State contributing towards the additional The rules for contracting out of the Be able to continue to benefit from any
between 66 and 67 as shown in the table. Pension when you do claim. Who gets the additional State Pension. additional State Pension changed on 6 April employer contributions to the scheme
State Pension? 2012. The changes mean that contracting No longer be able to benefit from any
Under the Pensions Act 2007, people born Will you get a basic You may be contributing to or receiving SERPS and the out will not be possible through: rebate of National Insurance contributions
after 5 April 1969 but before 6 April 1977 State Pension? credits towards the additional State State Second Pension
already have a State Pension age of 67. You can get a basic State Pension by Pension if you’re below State Pension age The additional State Pension has gone n money-purchase (defined-
A Contracting out through an occupational
paying or being credited with enough and you’re: under different names in the past. You contribution) occupational salary-related (defined-benefit) scheme
For people born after 5 April 1968 but National Insurance contributions (NICs) used to receive additional State Pension pension scheme will still be allowed. However, contracting
before 6 April 1969, their State Pension towards qualifying years before State n Employed and earning over £5,564 In through the State Earnings-Related n personal pension or a
A out for these schemes will be reviewed in
age would have been between 66 and 67. Pension age. 2012/13 (from any one job) Pension Scheme (SERPS). stakeholder pension the future.



Is it time to get more Self-Invested
flexible with your money?
Remove the cap on the retirement income you can take
Personal Pensions
Taking more control over your pension fund investment decisions
Pension legislation is always on the move method of accessing their pension Pension contract If you would like to have more control over Thousands of funds in commercial property, you may also have
and keeping up to date with the latest income, some will want to take advantage Depending on your circumstances, your own pension fund and be able to You can typically choose from thousands periods without rental income and, in some
changes could open up new opportunities of these enhanced drawdown facilities. all these changes may well sound like make investment decisions yourself with of funds run by top managers as well as cases, the pension fund may need to sell
for you in retirement. On 6 April 2011, good news, but there’s one important the option of our professional help, a Self- pick individual shares, bonds, gilts, unit on the property when the market is not at
the government announced that you no Flexible drawdown could, for example, be thing to be aware of. Just because the Invested Personal Pension (SIPP) could be trusts, investment trusts, exchange traded its strongest. Because there may be many
longer have to take pension benefits by used to meet one-off large expenditure rules about when and how you take the retirement planning solution to discuss. funds, cash and commercial property (but transactions moving investments around, the
the age of 75. items as they arise or to optimise your tax pension benefits have changed, it not private property). Also, you have more administrative costs are higher than those of
liabilities. It could also be a way to pass doesn’t mean your pension contract will More accessiblity control over moving your money to another a normal pension fund.
Previously, any tax-free cash lump sum money through the generations, either by have changed as well. A SIPP is a personal pension wrapper that investment institution, rather than being
had to be taken by age 75 and a pension ‘gifting’ regular payments, for example offers individuals greater freedom of choice tied if a fund under-performs. The tax benefits and governing rules
set up at the same time. The only into trusts, or as pension contributions to If the terms of your contract have than conventional personal pensions. of SIPPs may change in the future. The
alternative was if you had a big enough children using ‘normal expenditure’ rules not been updated to reflect the new However, they are more complex than Once invested in your pension, the funds level of pension benefits payable cannot
fund to take an income directly from it so as to help avoid Inheritance Tax. legislation, you could find that you can’t conventional products and it is essential grow free of UK Capital Gains Tax and be guaranteed as they will depend on
(known as income drawdown). take advantage of them. You could still you seek expert professional advice. Income Tax (tax deducted from dividends interest rates when you start taking your
Paying Income Tax find yourself obliged to buy an annuity at cannot be reclaimed). benefits. The value of your SIPP may be less
The government’s new rules affect In moving money out of your pension age 75. And if you haven’t taken your tax- SIPPs allow investors to choose their own than you expected if you stop or reduce
benefits in personal pensions and money fund before you die, you will be paying free lump sum at that age, you could still investments or appoint an investment manager Tax benefits contributions, or if you take your pension
purchase occupational pension schemes. Income Tax on such payments but at a lose the opportunity to do so. to look after the portfolio on their behalf. There are significant tax benefits. The earlier than you had planned.
rate that is lower than the 55 per cent tax government contributes 20 per cent
Gaining more control charge payable on a lump-sum payment Individuals have to appoint a trustee to of every gross contribution you pay – A SIPP could be a suitable
Many of these changes were designed to from your pension fund when you die. oversee the operation of the SIPP but, meaning that a £1,000 investment in option if you:
limit what the government clearly sees having done that, the individual can your SIPP costs you just £800. If you are
as over-generous tax relief concessions. Another age-restricted benefit where the effectively run the pension fund on his or a higher or additional rate taxpayer, the n ould like to have more control over
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But other changes have created the very rules have been eased is the opportunity her own. tax benefits could be even greater. In the your retirement fund and the freedom to
appealing prospect, for people aged to take tax-free cash – typically a quarter above example, higher rate (40 per cent) make your own investment decisions, or
55 or more, of gaining more control of your pension pot – when you first start A fully fledged SIPP can accommodate taxpayers could claim back as much as a prefer to appoint investment managers
over when and how they can use their to take your pension benefits. Until April a wide range of investments under its further £200 via their tax return. Additional to do this for you and are prepared to
retirement savings. 2011, if you hadn’t taken your tax-free umbrella, including shares, bonds, cash, rate (50 per cent) taxpayers could claim pay a higher cost for this facility
cash by age 75, you lost the chance to do commercial property, hedge funds and back as much as a further £300. n ould like a wide range of investments
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Under the current rules, if you meet certain so. Now that restriction is removed too. private equity. to choose from
eligibility criteria, you can now take as Other considerations n ant to consolidate your existing
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much as you want from your pension, You cannot draw on a SIPP pension before pension(s) into a more flexible plan
without the maximum income restrictions age 55 and you should be mindful of the fact n Need a tax-efficient way to purchase
that apply to conventional drawdown that you’ll need to spend time managing commercial property
arrangements. To be eligible for this your investments. Where investment is made
facility – known as ‘flexible drawdown’ –
you have to show that you already have a
‘secure pension income’ of £20,000.

Enhanced
drawdown facilities
While, for many people, buying an annuity
is likely to remain the most appropriate



Enhanced annuities Immediate needs annuities With-profits annuities have the normal
If you are a smoker, in poor health or These are designed for an elderly person annuity options, namely single or joint life,

Helping you
have a life reducing medical condition who is terminally ill and about to enter and a choice of guaranteed periods and
it is worth ascertaining whether you a nursing home for the final years of payment frequencies.
are eligible for an ‘enhanced’ annuity. their life. A lump sum payment will buy
This may pay a higher income because an immediate needs annuity, which Flexible annuities

maximise your
a medical condition, which is likely guarantees payment of the elderly A flexible annuity combines the
to reduce your lifespan, means that person’s care until they die. These advantages of an income for life with
the insurer probably will not have to annuities are expected to normally pay out the advantages of a certain amount
pay out for as long as for someone in for around two to three years only. of flexibility and control over income
good health. payments, investment options and death

retirement income
With profits annuities benefits.
There are three basic types of With profit annuities pay an income for life,
enhanced annuities: but the insurance company invests your When a traditional (non-profit) annuity
pension fund in a with profits fund, (rather is set up, the options selected cannot
Lifestyle annuities than fixed interest securities as happens be changed at a later date even if your

Why your annuity will have to last you for longer These take into account certain
behavioural and environmental factors, as
with a conventional annuity). circumstances change. For instance, if
it is a joint life annuity and your partner
well as medical factors to determine if you A with profits annuitant therefore benefits dies first, the annuity cannot be re-priced
An annuity is an investment which Tailoring the income purchase, your estate would continue to have a reduced life expectancy. from any future profits, but will also share to reflect the higher rates for a single life
will pay you an income for the rest of to meet your personal receive an income for the next three years. in any of the losses in the with profit fund. annuity. But a ‘flexible annuity’ gives you
your life, no matter how long you live. circumstances Any factor that may reduce life expectancy You have to choose an ‘Assumed Bonus income flexibility, investment control and
This is achieved by handing over your Annuities have a number of important Annuity protection may be considered. These include smoking Rate’ (ABR) of say three to 5 per cent. choice of death benefits.
pension fund to an insurance company and valuable options that allow you to It is also possible to buy a ‘money (10 cigarettes, or the equivalent cigars
in return for an annuity when you tailor the income to meet your personal back’ or ‘value protected’ annuity. or tobacco, a day for the last 10 years), As a rule of thumb, if the bonus actually
retire. The insurer then guarantees to circumstances. The most important options If you die before reaching age 75, obesity/high cholesterol, hypertension/ paid by the insurance company exceeds For more information on the benefits of
pay you an income for the rest of your are as follows: and you have not received a certain high blood pressure and diabetes. the ABR, your income will rise. If it is shopping around before you purchase your
life via the annuity. amount of annuity payments by that less than your chosen ABR, your income annuity, we could help make the process
Single or joint time, the balance will be paid as a Impaired life annuities will fall. This means that you have to be easier – please contact us.
Increasing longevity means that your A single life annuity pays a secure level of lump sum. This lump sum has the An impaired life annuity pays an even prepared to receive a fluctuating income,
annuity will have to last you for possibly income, but stops when you die. If you are rather clumsy name of ‘an annuity higher income for those who have so they are only suitable for people who
20 or even 30 years of retirement, making married, it is possible to have a joint life protection lump sum death benefit’ significantly lower life expectancy. The can afford to take this risk.
decisions around inflation proofing your annuity. This means that annuity payments and is taxable at 35 per cent. insurer will require a medical report from
income very important. will continue to your partner if you die first. your doctor (there is no need for you to
At present the annuity protection option have a medical examination).
Different types of annuity You can choose how much income your is only offered by a small number of Medical conditions such as heart attacks,
In the UK, there are basically two types partner will receive after you have died. annuity providers, mainly those which offer heart surgery or angina, life threatening
of annuity: For example, a 50 per cent joint life enhanced annuity rates. cancers, major organ diseases, such as:
annuity means that when you die, your liver or kidney and other life threatening
n ension annuities (compulsory
P partner will receive 50 per cent of your Escalating annuity illnesses such as Parkinson’s and strokes
purchase) pension until he or she dies. But be aware A level annuity pays the highest income will be considered.
n urchased life annuities (voluntary
P that buying a guarantee will reduce the at the start and does not increase in the
purchase) income payment slightly. future, whereas an escalating annuity
starts at a lower level, but increases each
All annuities share the following Guarantee periods year. The increases can be constant, for
characteristics: You can purchase a five or 10 year instance, increasing by 3 per cent each
guarantee to ensure that if you die soon year, or the increases can be linked to
n hey pay a level of guaranteed income
T after annuity purchase, your spouse will changes in the retail price index, more
n hey turn a lump sum into a stream of
T continue to receive your annuity income commonly known as index linking.
future income for five or 10 years.
n Lifetime annuities guarantee to pay an It is only natural to want the highest
income for as long as you are alive, no Buying a guarantee will reduce the income income, but you should not forget
matter how long you live payment slightly, but this is a valuable the effects of inflation. An increasing
n hen you die, payments stop, unless
W option if you want peace of mind. annuity may start lower, but it will pay
you have chosen a joint life annuity, a out more income in the future. The
guaranteed payment period or a value If you select a five year guarantee (which corrosive effect of inflation should not
protected (money back) annuity is the norm), and died two years after be underestimated.


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