Pensions
At Fineholm Financial Services we can offer a range of pension plans to help prepare
for a financially secure retirement.
- Personal Pensions
- Self Invested Personal Pension
- Income Drawdown
- Phased Retirement
- Pension Annuity
There are a number of ways to invest for your retirement and using a pension plan
is by far the most popular. Pensions offer a number of tax breaks to encourage individuals
to contribute money each month towards their retirement. Although there are other
ways to invest money on a regular basis, such as ISAs, pensions are still the most
tax efficient way to invest over the long term.
Many people will have access to a pension through their employer. Today the majority
of company pension schemes are money purchase or defined contribution schemes. This
means the amount of pension available to you at retirement is determined by the
value of your pension pot when you decide to retire.
To ensure that there are no nasty surprises when you come to retire it is important
that you manage your pensions on a regular basis. At Fineholm Financial Services
we can provide you with an annual pension review which will show what your pensions
are forecast to achieve at retirement. We can also illustrate the difference that
increasing your monthly contribution will make to your eventual retirement income.
The table below shows how much your money could grow if you invested the same amount
every month for 30 years. The important thing is to start investing as soon as you
can so your money has plenty of time to grow.
|
Amount you invest each month |
Annual growth rate |
|
5% |
7% |
9% |
|
£25 |
£20,468
|
£29,402 |
£42,860 |
|
£50
|
£40,935 |
£58,804
|
£85,720 |
|
£100 |
£81,871
|
£117,607 |
£171,439 |
|
£200 |
£163,742 |
£235,214 |
£342,878 |
We’ve used standard growth rates, so the figures given are only examples and are
not guaranteed – they are not minimum or maximum amounts. You could get back more
or less than this depending on how your actual
Investment grows and its tax treatment. Please bear in mind that inflation would
reduce what you could buy in the future with the amounts shown. Also, the figures
shown do not take account of any charges or expenses, which would also reduce the
amount you might get back.
Tax relief
Under current government legislation, individuals can claim tax relief on their
pension contributions at their highest rate of tax. If you are a basic rate tax
payer you will receive 22% or £22 for every £100 of gross contribution. Therefore
you pay £78 net per month and the government will contribute £22 per month into
your pension.
Higher rate tax payers receive the same benefits as basic rate tax payers, but can
additionally claim a further 18% on their annual tax return. Therefore the net cost
is only £60 per month. The advantages of tax relief are significant and this is
the main reason that pension schemes are by far the most tax efficient method of
saving for your retirement.
At retirement you can take 25% of your pension fund as a tax-free lump sum (now
called a pension commencement lump sum, as from the 6th April 2006). The remaining
fund must be used to provide an income for the rest of your life.
A personal pension is an individual pension plan that you can contribute a monthly
amount and receive tax relief at your highest rate of tax on your contributions.
The pension plan is not linked to any employer and many providers allow you to start
and stop contributions throughout the life of the pension, making them very flexible.
A SIPP is a registered pension scheme which allows you to save in a tax-efficient
manner for your retirement. You and/or your employer can make single or regular
contributions; if you have previous pension arrangements, you may transfer them
into your SIPP. Being self invested, you make your own investment decisions, or
you may appoint an investment adviser (who must be suitably authorised).
You can invest in a wide range of permitted investments. Between the ages of 50
(from 2010 age 55) and 75 years you can withdraw an income directly from your SIPP
(as opposed to purchasing an annuity). This income must be within HMRC limits.
Permitted Investments
You may invest in a wide range of investments. The range of permitted investments
includes:
- Stocks and Shares quoted on the UK Stock Exchange, including securities on the Alternative
Investment Market
- Deposit Accounts
- Trustee Investment Bonds
- Fixed Interest Securities
- Futures and Options
- Unit Trusts
- Traded Second Hand Endowments
- Commercial Property
It is not permitted to purchase residential property.
A facility which allows a delay in buying an annuity if rates should be low when
retirement age is reached. Drawdown allows putting off buying an annuity to a maximum
age of 75, giving an income directly from the pension fund in the meantime.
An income drawdown plan allows you to withdraw all of the tax free cash available
(maximum 25%) from your pension plan and leave the remainder of your pension fund
invested. This facility is unique to income drawdown and can be beneficial if you
do not wish to sell the underlying assets held in your pension fund or self invested
personal pension plan.
A phased retirement plan allows you to ‘phase in’ the income you need over a number
of years using a mixture of tax free cash and traditional pension annuities. Phased
retirement effectively divides your overall pension plan into 1000 or more segments
and treats each segment as an individual pension plan. This allows you to convert
one or more segments each year into a pension annuity to provide the income required
and leave the remaining segments fully invested. Phased retirement can be combined
with income drawdown to provide a totally flexible retirement income.
A pension annuity is used to convert capital within a pension plan into a regular
guaranteed lifetime income. As you do not have to buy your pension annuity from
the same insurance company that manages your pension, it makes sense to "shop around"
and obtain the best pension annuity available. Fineholm Financial Services can research
the market to obtain the best annuity quote for you.
With Profit Annuity
A with profit annuity links your income to the performance of the insurance company’s
with profit fund. Instead of providing a known guaranteed lifetime income your actual
income is linked to the annual bonus rate declared by the insurance company for
the with profit fund.