Pension Planning

The pensions industry is undergoing something of a revolution and so it is more important than ever to get the best possible advice. Your employment status may determine what arrangement is best for you but in certain circumstances choices still have to be made. For example, a company director could fund for their retirement benefits via an occupational scheme or a personal pension. Once this decision has been made they must decide whether they prefer a fully insured scheme or a self administered arrangement.

Personal Pensions

Available to the self-employed and employees but subject to maximum funding levels. (please ask for details). Depending on your age you are able to contribute a percentage of your net relevant earnings (remuneration including, benefits in kind or net profits). In any event, all contributions are restricted by the earnings cap which limits the maximum contribution in any tax year. At retirement a maximum of 25% of the fund may be taken as tax-free cash. The residual fund has historically been used to purchase an annuity, which provides a guaranteed income for life.

At retirement you will not be obliged to purchase this annuity and under the "open market option" can select the company offering the highest rate - you will need advice as there are also other options to consider.

Annuities

Available from insurance companies and calculated by reference to the yields on 15 year gilts. They can be arranged on an own life or joint life basis, for guaranteed periods and with or without index linking. The rate is fixed at the point of purchase and therefore suffers from a lack of flexibility.

Self Invested Personal Pensions

These are an alternative to insurance company schemes and allow the member to participate fully in all investment decisions. Such schemes are able to invest in insurance company funds or purchase equities and gilts direct. They can also invest in commercial property. They can be expensive to administer and therefore are really only suitable for those who are able to make significant contributions.

Income Withdrawal

This facility was introduced because of concerns over falling annuity rates. The pension fund itself provides a pension in line with limits set by the Government Actuary. An individual's income may be altered within Government limits but may be re-calculated every 3 years. This provides a great deal more flexibility than the annuity method. Potentially greater death benefits are also available as your beneficiaries may receive the remaining fund less a tax charge of 35%.

This will almost always result in a greater death benefit than would be available under an annuity arrangement. Care should, however, be exercised as it is possible for pension income to reduce in payment and therefore greater flexibility is available at the cost of losing the guarantees normally associated with annuities.

Phased Retirement

Pension funds may be split into a number of segments which can be "cashed in" when required. This allows very tax efficient planning of income but would not be appropriate if you wished to maximise your tax-free cash. This facility would therefore be most suitable for those clients who do not have to rely on their pension income in retirement but wish to maximise tax efficiency.