Paul Leatherbarrow, Liverpool
What is a pension? £97.65 a week could you live on £97.65 a week (£156.15 for a couple) the basic state pension is insufficient for many to provide a comfortable retirement. The state pension is likely to come under more pressure in the future as the baby boom generation reaches retirement age and the ratio of the working population to the retired population reduces Whether you dream of spending lazy days in the garden, holidays abroad or simply time with your grandchildren, a pension plan could give your retirement plans a healthy boost .
With many employers closing their company pension schemes and the government proposing to increase the state pension age to 68, these gloomy statistics mean we all need to take greater responsibility for planning our retirement. Your retirement should be something to look forward to – a chance to take up new hobbies, spend more time with family or friends or travel the world – not to worry about how to make ends meet. What are the options available to you if you want to do more than rely on the state when you retire?
Did you know that:
1) 1.4 million Pensioners survive on an income of £5,000 a year or less?
2) 12% of people over state pension age have had to continue working full or part time, to supplement their pension income.
3) There are currently 13.4 million people who are either not saving or are saving too little in a pension to provide for an adequate retirement income.
Will you be able to relax and enjoy your retirement? Are you saving enough for your retirement? Pension plans Pensions plans are financial tools whose purpose is the provision of money in old age. They are saving plans with tax relief which provides a regular income in retirement.
Payments can be made into a Personal Pension Plan either as a lump sum or as regular payments, or a combination of both. The payments can be changed as your income changes throughout your working life.
It is worth noting that a Personal Pension is not tied to your employment. If you want to be sure that you will have something to live on when you retire, you need to save. A pension is a good savings vehicle due to the tax breaks. Start planning today and aim to improve your own retirement as much as possible. Then you will not be reliant on the whims of politicians and civil service bureaucrats
What does a Pension do? A pension is a sum of money that is paid to you on a regular basis on ceasing to work. The amount of pension you receive on retirement is largely based on the amount you have saved and the length of time you have saved for. In addition, because the majority of pension funds are invested in the stock market, the value of most pensions will also be dependant on the management of the pension fund whilst you are contributing into it. Pensions What You Need To Know we all like to feel that we in the prime of our lives and that the pension years are way off in the distance. Indeed, for many people just the word pension conjures up images of old age pensioners and walking sticks. Pensions are the thing furthest from our minds, right?
Unfortunately this is has to change. Life expectancy in the UK is growing and together with it, comes the expectancy that either people's pensions won't see them through old age or that we are going to have to work longer in order to get a high enough pension to live off. If you are one of the people who has just realised that their future pension needs have to be addressed then you really should read on and bring yourself up to date. As the current expected length of pension contributions is set to a life expectancy of 78, every year that we live longer than that is a year that we have not accounted for in our pension contributions.
What is the Value of your fund Do you know how much of a pension you will get when you retire? Many people are surprised to find how low their expected pension is. We can help you assess your expected pension and, if it is likely to be insufficient for your needs, help you plan to improve it. A pension is a long term investment. The fund value may fluctuate and can go down. Why Is A Pension So Important?
Unfortunately the hard facts are that everyday you get closer to your retirement and everyday that you don't pay into a pension scheme is a little bit less comfort in your old age. Sadly it is no longer considered enough just to rely on the State Pension. If you want to have a comfortable life when you retire and you don't just want to be living off a minimal income then you need to start paying into a pension scheme. Good pension advice from a reputable financial adviser should arm you with the information needed to be able to choose a pension appropriate to your individual circumstances which will take into account your present situation and your future requirements. Your retirement should be something to look forward to – a chance to take up new hobbies, spend more time with family or friends or travel the world – not to worry about how to make ends meet.
When would you like to give up work? what do you plan to do in retirement? , what concerns would it give you if your retirement income was only going to be half your current salary?, what would you have to give up if you had insufficient income?, what plans would disappear?, how are you going to you fund your retirement?, how are you going to survive?, if you had an extra income what benefits would that bring to you and your family?. These are just some questions you need to be able to answer when considering your retirement. I'm just starting out surely I am too young from your first day at work; it makes sense to put something away for the time when you retire. And changes are coming to make it easier to save while you are in work.
Even if it's only a small amount, the money you put away early in life can build up a tidy sum over time. And the sooner you start, the more you are likely to get Its never too early to start saving for a pension, retirement may seem like a long way off but by saving early on means you do not have to save a larger amount of your net disposable income later in life when you want to start enjoying it. When you are starting out there are many more things to spend the money on. Added to that, there isn't always much money left after mortgage, rent or bills have been paid, and people are loathe to see that amount reduced because of pension payments. It is generally accepted that the state pension alone is unlikely to provide a sufficient income during retirement, nowadays we are living longer and expecting more from our retirement years.
So we need more money than previous generations. Why Start Now? The sooner you start saving for your retirement, the more pension plan benefit you'll get. If you leave it until later in life, the amount of money you need to save each month could increase substantially, whereas if you begin in your twenties, you can spread your savings over a longer period. The demographics of the UK population are changing. In the future, there will be a smaller number of workers supporting a larger number of retired people, and with the increase in life-expectancy, retirement itself will become longer and potentially more expensive. Workers are unlikely to be able to rely on the UK state pension as their only source of income and so need to be planning and saving for their retirement now.
The current UK state pension for single people is just £97.65 per week. (2010/11) Imagine yourself living on this and then re-consider your attitude to pension savings. How Can I Start? If you work for a company that offers a corporate pension scheme, then you should probably take advantage of it. Many company schemes offer better benefits than personal pension plans, and in the majority of cases, your employer will also pay into the scheme for you, increasing your funds. If you are self-employed or move jobs frequently, then you may want to consider a personal pension plan.
Benefits include flexibility; you can continue to pay into the plan no matter where you are working, and you can adjust your payments in line with your income, and even make lump sum payments. Whatever you decide to do, it is worthwhile taking the time to speak to an independent pensions adviser. With their wide-ranging market knowledge and experience, they can look at your circumstances and help you to decide which pension option is right for you. What is a pension? Pensions are long-term investments with special tax rules – for example, you get tax relief on contributions.
You can't access the money in your pension until you reach age 50, going up to 55 by 2010. Some pension schemes have additional rules about when you can take your benefits – check with your scheme provider. You'll need to ask your pension provider when they will increase the minimum age as they can do this at any time between April 2006 and April 2010. But you no longer have to stop working to draw a pension as long as your scheme's rules let you. How does it work? The way your pension works will depend on the type of pension you have.
There are three main types: Occupational salary-related schemes Some employers offer these schemes. They are sometimes called final salary or defined benefit. This is because they usually provide a pension based on: the number of years you have been a member of the scheme (known as pensionable service); Your pensionable earnings (often averaged over the last three years before retirement); and The proportion of those earnings you receive as a pension for each year of membership (called the accrual rate).
The most common accrual rates are 1/60th or 1/80th of your pensionable earnings for each year of pensionable service. The scheme is run by trustees who look after scheme members’ interests and your employer contributes to the scheme. Your employer is responsible for ensuring there is enough money at the time you retire to pay you the pension, but see 'Risks in these schemes' below. Example Bill belongs to an occupational pension scheme at work. It is a salary-related scheme. The accrual rate is 1/60th.
This means Bill can expect a pension of 1/60th of his pre-retirement pensionable earnings for each year he belongs to the scheme. Bill retires at 65 on a salary of £24,000 a year, having been in the pension scheme for 10 years. His pension is: 10 x £24,000 divided by 60 = £4,000 a year (less if he takes any lump sum). Risks in these schemes
Some salary-related occupational schemes have been in the news because the employer has become insolvent and there wasn't enough money in the employer's pension scheme to pay the pensions it had promised to its current and former employees. The government set up a Pension Protection Fund in April 2005 to protect members of salary-related schemes.
The fund pays some compensation to scheme members whose employers become insolvent and where the scheme does not have enough funds to pay members' benefits. The level of compensation may not be the full amount.
Changing jobs If you change jobs, you stop paying into the pension and can leave it where it is (called a preserved or deferred pension). Alternatively you may wish to transfer it to your new employer, but there are risks and costs associated to that. You should take advice if you are thinking of transferring your pension. How much should you pay into a money purchase pension? What you pay into a pension plan depends on what you can afford. It can be anything from as little as £20 a month to your monthly salary, if you wish. The earlier you start the better. This is because the more time your savings have to grow; the bigger your pension is likely to be. Self-invested personal pensions Retirement Retirement is one of the most important life events many of us will ever experience.
From both a personal and financial perspective, realizing a comfortable retirement is an incredibly extensive process that takes sensible planning and years of persistence. Even once it is reached; managing your retirement is an ongoing responsibility that carries well into one's golden years. While all of us would like to retire comfortably, the complexity and time required in building a successful retirement plan can make the whole process seem nothing short of daunting. However, it can often be done with fewer headaches (and financial pain) than you might think - all it takes is a little homework, an attainable savings and investment plan, and a long-term commitment.
With the help of a Stirling House Independent Financial Adviser we’ll break down the process needed to plan, implement, execute and ultimately enjoy a comfortable retirement. Why plan for Retirement ? We need to take our retirement into our own hands in the first place. This may seem like an obvious statement, but you might be surprised to learn that the key components of retirement planning run contrary to popular belief about the best way to save for the future. Further, proper implementation of those key components is essential in guaranteeing a financially secure retirement. This involves looking at each possible source of retirement income. The uncertainty of a State Pension First off, we need to be up front about the prospects of government-sponsored retirement - they're not very good. As we all know, the developed world's populations are continuing to age, with fewer and fewer working-age people remaining to contribute to social security systems.
At the same time, greater and greater burdens are being placed on the system, as more and more people retire and, due to advances in health care, are living longer than ever before. This "double-whammy" effect holds the potential to put significant strains on the system and could leave governments with no other viable option but to reduce social security benefits or suspend them altogether for all but the poorest of the poor. In addition, many employers who used to offer defined-benefit (final salary) plans are now shifting to defined-contribution plans because of the increased liability and expenses that are associated with defined-benefit plans, thus increasing the uncertainty of a financially secure retirement for many. These uncertainties have transferred the financing of retirement from employers and the Government to individuals, leaving them with no choice but to take their retirement planning into their own hands.
Would a personal pension be good for you? Your decision will largely depend on how much you can afford to save for your pension and how much you will get from other pensions.
Personal pensions may be suitable for:
* people who are self-employed
* people who are not working but can afford to pay for a pension
* employees whose employer does not offer a company pension scheme
* employees who have the option to pay into a company pension, but choose not to
* employees on a moderate income who wish to top up the money they would get from a company pension
How much pension you can get You will receive a yearly forecast from your pension service provider. This will tell you how much: your fund is worth you can expect to receive if you continue to contribute at your current level The final value of your pension fund will depend mainly on how much has been paid in and how well the fund's investments have performed. The companies that run these pensions charge you for starting up and running your pension. Charges are normally deducted from your fund. Any questions about your personal pension should be directed towards your pension service provider.
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