Whether you want to have a quiet time with your family or go on exotic trips around the world, it is always best to start planning early to at least cover your basic standard of living.

It is a fact that millions of people in the UK are not making enough financial provision to maintain their standard of living when they retire. Far from enjoying a comfortable retirement, many will struggle to get by. No-one can maintain a reasonable lifestyle just by relying on the state pension and successive governments have encouraged people to secure their own future through retirement planning.

There is no doubt that the value of the State Pension is eroding over time and due to the demographics of the UK, the next generation are likely to see further real reductions in state support.

Is it too early, or too late to plan for your retirement?

No matter how far away (or how close) your retirement seems now, you should think seriously about the way you want to spend your time, how much it’s going to cost and how much you need to save so you can have a retirement to look forward to.

If you are currently working, then you are used to earning money so you can maintain your standard of living. Your income buys you the lifestyle you choose, and gives you a degree of freedom.

If you contrast what you may get in retirement against your current income, you will be able to decide for yourself what the difference to your life would be, when you retire. Starting some form of retirement planning even with a modest contribution should make a difference.

What is Retirement Planning?

The traditional way of answering this question is with a simple answer – pension planning, but that is not always the only way of doing it. Many people use other forms of investments such as ISAs, Unit Trusts and even the value of their home to support their standard of living once they have retired.

The most tax-efficient way of saving for retirement is undoubtedly with a pension. This could be arranged via your employer or yourself in the form of a personal pension.

Pension tax legislation has altered dramatically over the last few years, largely to give individuals greater freedom to save for their retirement.

A Personal Pension

A personal pension is a tax-efficient savings scheme. It is available to anyone age under 75 as a means for saving for retirement. There are several different ways of making a contribution to a personal pension and you can pay a regular monthly payment or a single lump sum.

At your chosen retirement date you can choose to buy an annuity, which gives you a regular income for the rest of your life. You can also take a proportion of your fund as a tax-free cash payment when you retire. If you die before you retire, the fund will be paid out in benefits to your family or other beneficiaries.

Personal pensions are very flexible. Due to the tax benefits, the Government sets limits on how much you can pay into the plan. Non-earners can contribute a maximum of £3,600 a year, and earners can pay their total earned income up to the annual allowance. You can change or even stop your contributions, or transfer your savings into another pension fund, at any time.

The tax treatment of a personal pension contribution is simple. For a basic rate taxpayer, for every £100 contribution, you only actually pay £78, due to tax relief. Higher rate taxpayers get the full 40% tax relief.

Most personal pension plans are run by insurance companies and you have vast choice as to where and which asset classes you can invest in. Many insurance companies offer a ‘lifestyle option’ which means that the closer you get to retirement the fund value of your personal pension is moved into lower risk investment funds.

With a personal pension you can decide when you want to take your benefits at any age between 50 (55 from 2010) and 75. You don’t necessarily have to retire at the time that you take your benefits. When you take your benefits, you will be given the option of taking up to 25% of your fund value as a Tax-Free Lump sum. With the remainder, you buy an annuity for life.

A summary of Retirement Planning

We all want to enjoy a financially secure future when we retire and we can help with all aspects of your retirement planning. Please contact us for more details.