Retirement

How comfortable would you like your retirement to be?

Ultimately, It’s about peace of mind - For most people, relying on the State Pension when they retire is not an option. At just over £8,500 a year, the State Pension (assuming you qualify for one ) covers nothing more than the day-to-day basics. And even if you’re fortunate enough to have a workplace pension, it may not provide sufficient money to pay for the life you’d like in retirement. To be financially secure when you retire—and enjoy the peace of mind that financial security brings—depends on planning. Effective and expert retirement planning will help pay for the life you hope to live when you’re no longer earning a living. Central to your retirement plan, is a personal pension.

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Qualification

Personal pensions are complicated things. There are different types and each has its pros and cons. And there are lots of rules about what you can and can’t do with a personal pension. For example, there are limits on how much you can pay in and withdraw each year. You also have choices as to what you ‘do’ with your pension when the time comes to retire. Some pensions provide death benefits, some don’t. This page summarises some of the main points—it is not a definitive guide. Your E & G advisor will and take you through the relevant details carefully and clearly.

Who looks after personal pensions?

Most personal pension schemes are managed by approved pension companies, many of which are insurance companies. These companies are sometimes known as ‘pension providers’.

Taking money from your pension

You can access the money in your pension pot from age 55, even if you’re still working. (The rules are different for people who are seriously ill.) You can make withdrawals—as and when you need to—directly from your pension pot. How much you can withdraw depends on the value of your pension pot at the time you make the withdrawal. On the other hand, if you need a fixed amount of income every year, you can exchange some or all of your pension pot for an annuity. An annuity provides a guaranteed amount of income for the whole of your life.

How a private pension works

A private pension is essentially, a long term savings plan. You can pay in to your plan each month, or if it suits you better, make a large one-off payment or pay in occasional lump sums. The money you pay in to your plan goes towards building up your pension ‘pot’. Your pension provider will invest your pot in shares, cash deposits and other types of securities with the aim of increasing its value over time.

How much money can you expect from your private pension?

Generally speaking, the more you pay in to your pension pot over the years, the bigger it will be. But that’s only part of the calculation: other factors include:

  • The age at which you start your pension
  • Your health
  • How well your pension pot has been invested

Your advisor will be able to give you an estimate of what your pot will be worth on a year-by-year basis.

Time to take a fresh look at your retirement arrangements?

The latest pension rules—including the change to the State Pension Age for women—are likely to affect your existing retirement plans. For example, a woman will only receive a State Pension at age 65. And from 2019, men and women will have to wait until age 66 to receive a State Pension. Here are some other changes to State and personal pensions that you may not be aware of:

  • For the tax year 2018-19, the full State Pension is £164.35 a week
  • It’s not compulsory, but you can start drawing from your personal pension pot when you reach the age of 55 and continue to work
  • You can take all of your pension from 55 years of age: 25% of the cash will be tax-free, the rest will be subject to income tax
  • Under a ‘pension drawdown’ arrangement you can take a regular and variable amount of income from your pension pot, leaving the rest invested
  • When you die, the money that’s left in your drawdown pension can be passed to your family

Your advisor can help

Retirement planning is a complex subject. However, your advisor has the knowledge and experience to create the most suitable retirement plan for you. But before he or she can do that, you’ll need to consider these key points:

  • When you finish paid work, how much money do you think you will need each year?
  • If you already have a personal pension, do you know what it’s worth and who’s the provider is?
  • On your death, would you like your pension pot to pass to your dependents?
  • What are your feelings about investment risk and reward?

1 You must have thirty years’ worth of National Insurance contributions to receive the full basic State Pension.