Retirement planning

The value of the investment can go down as well as up and you may not get back as much as you put in.


Everyone needs to plan for their retirement. People are living longer and healthier lives, so it’s even more important to think about how and when to save for retirement and how long to continue working.
Pensions can be confusing and many people don’t know where to begin, especially when there are so many other things to spend your money on.
But the truth is that a pension is one of the most effective ways to save money because you can get tax relief on the money you save in a pension scheme.

So, with a bit of planning, you can do a lot to help yourself get ready for retirement. Fairly small changes earlier in life can make a big difference in the future – and you don’t need to blow your monthly budget.

A pension annuity can provide a regular income to live on when you retire and it will continue to pay for as long as you need it. However the good news is that an annuity is not the only option that you have nowadays.
Most pension schemes work in broadly the same way. While you are working, you pay a small part of your wages into the pension fund – or, in the case of the State Pension, you pay National Insurance to the Government directly from your wages. When you have stopped working, or reached State Retirement age, you then receive regular payments based on the amount you have contributed.
Everyone needs money to live on when they retire but few people spend enough time thinking about long-term savings. Because more people are living longer, your retirement could make up as much as a third of your life. So when you do retire, you will still need to pay bills and to have money for making the most of your increased leisure time.


There are 4 main types:

  • Occupational salary-related schemes – offered by some employers;
  • Occupational defined contribution schemes (also known as ‘money purchase’ pension schemes) – also offered by some employers.
  • Stakeholder and personal pensions – you can start these yourself, or you may be offered a stakeholder pension or a group personal pension (GPP) at work.
  • The State Pension: Made up of the basic State Pension and the additional State Pension.

Pensions provided by your employer

  • If your employer offers a pension scheme it’s a good idea to find out what type it is and how you can join. Your employer makes all the arrangements and may even contribute to it.
  • In future all employers will have to offer and contribute to a pension to help more people save for their retirement. Employers who haven’t offered an occupational pension in the past may set up their own scheme, or may pay pensions into a new ‘available to all’ scheme called National Employment Savings Trust (NEST).
  • The requirement on employers will be introduced in stages 2012 – 2018.

– Link through to Pension Regulator website

Self-Invested Personal Pension (SIPP)

The self-invested personal pension (SIPP) itself is a pension wrapper that holds investments until you retire and start to draw a pension income.

SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they choose. They may have higher charges than other personal pensions or stakeholder pensions. For these reasons, they are more suitable for large funds and for people who are experienced with investing.

With standard personal pension schemes, your investments are managed for you within the pooled fund you have chosen. SIPPs are a form of personal pension scheme that give you the freedom to choose and manage your own investments. Or you can employ and pay for an authorised investment manager to make the decisions for you.

Most SIPPs allow you to select from a range of assets, such as:

  • particular stocks and shares quoted on a recognised UK or overseas stock exchange;
  • government securities;
  • unit trusts;
  • investment trusts;
  • insurance company funds;
  • traded endowment policies;
  • deposit accounts with banks and building societies;
  • National Savings products; and
  • commercial property (such as offices, shops or factory premises).

This list is not exhaustive and different SIPP operators will offer different ranges of investment choices.


Pensions you start yourself (Personal Pension)

All employers with five or more employees have to offer access to a pension scheme. If your employer doesn’t offer a pension, there are lots of pension providers for you to choose from to take out your own pension. You can go to a provider direct but bear in mind that their representatives can only advise you on their company’s own products, or ones they have adopted from other companies. Alternatively you can get help in choosing a pension and provider from a financial adviser.



Q: New state Pension Age: When might I be able to retire?

For many years the age at which you can claim your state pension benefits has been 65 for men and 60 for women.

But the previous Labour government set out plans, based on recommendations from Lord Turner, to steadily increase the state pension age to 68 for both men and women over the next four decades.

In May 2011, the new coalition Government initially signalled its intent to speed up the process, bringing forward the first rise to 66 for men from 2026 to 2016.

In the end, the Comprehensive Spending Review in October 2010 settled on a less radical option, confirming the rise to 66 for both men and women would come by 2020.

However, the Government said it will have to rise even higher in following years. This could see many Britons working today wait until age 68 or even 70 before they get their state pension.

For women, the new rules mean much more dramatic rises than feared. It had been expected that the women’s state pension age would rise to 65 by 2020. It will now move to 65 by 2018 and then be hiked to 66 (same as men) by 2020.

The previous Labour government’s policy had been to raise the state pension age to 66 by 2026 and then incrementally to 68 by 2046. Retirement was due to equalise for men and women at 65 by 2020, rise to 66 between 2024 and 2026, 67 between 2034 and 2036, and 68 between 2044 and 2046.

So  what does this mean?

All men and women under 56 will have to wait at least until 66 before they can retire.

Those born between April 1950 and April 1954 will have their own specific retirement dates that will gradually increase (see below).

 MEN – a rough guide

  • Under 32s…………………………… can get state pension at 68*
  • Aged between 32 and 41………………….. can get state pension at 67*
  • Aged between 42 and 56…………………….can get state pension at 66
  • Aged between 56 and 57…….can get state pension at 65 + (see below)
  • Older than 57………………….can get state pension at 65

WOMEN – a (very) rough guide

  • Under 32s…………………………….can get state pension at 68*
  • Aged between 32 and 41…………………..can get state pension at 67*
  • Aged between 42 and 57………………..can get state pension at 66
  • Aged between 56 and 60…….can get state pension at 60-65 (see below)
  • Older than 60…………..can get state pension at 60

*Warning! These changes are under review and will be altered by the coalition Government. Expect further announcements ‘in due course’, they say.

Q: What is an annuity? 

 An annuity converts a lump sum (usually from a pension fund) into retirement income.

In order to understand how annuities work, consider what would happen if there were no annuities.

If you wanted an income from your pension fund when your retire, you would have to make regular withdrawals. However this would create two problems.

  • How much income?
    • If you draw too little income you would die without having spent all your money, but you would leave money to pass on to your family.
    • Yet, if you draw too much you would run out of money and have to rely on your savings or fall back on your family or the State.
  • Where to invest?
    • If you invest too cautiously your income will be lower, but safer
    • if you invest in a more risky way, you might obtain more income if your investments perform well.

Annuities efficiently convert capital into income by providing a high level of guaranteed income for life with no risk. This is achieved by investing in fixed interest investments and applying whats called a mortality cross subsidy.

For more information, contact Ablestoke



Q: Where can I find or more about The State Pension?

The above link takes you to the DirectGov website where this is explained in detail.

Alternatively, talk to a financial adviser.

For more information, contact Ablestoke