Pension Planning

Pension Planning (Regulated by the FSA)

The Marmite of financial planning – Pensions! But is it deserved? Consider the following scenarios:

Bob, Geoff and Steve are colleagues who work away from home on a 3 month contract cycle of 2 months on, one month off. When they work they’re paid £3,000 per month but they’re not paid for the month they are off. So how do they plan for the month they’re at home with no pay?

• Bob

Bob wants to make sure that he and his family can enjoy his month at home so when he’s working he saves £1,000 of the £3,000 he’s paid so Bob’s spendable income therefore remains level at £2,000 per month across the 3 month cycle we as see here:

Consequently, Bob and his family always look forward to Bob’s month off and they always have a great time.

• Geoff

Geoff does save for when he’s at home but he doesn’t make it quite the priority that Bob does as he only saves £500 of the £3,000 he’s paid and because of this his spendable income takes a dip when he’s at home as we see here:

The result is that things are very tight whenever Geoff comes home and there’s certainly nothing spare to enable Geoff and his wife and children to enjoy the time when Geoff is home.

• Steve

Steve is a “tomorrow” kind of chap and puts off saving for when he’s at home even though it’s always in the back of mind. In month one Steve’s thinks that going home is a long way and therefore doesn’t save anything. It’s the same at the beginning of month two and by the time it dawns on him that he’ll be going home in a few weeks he hasn’t got much left to save and can only manage £500. So Steve ends up with only £500 to see him and his family through the month he’s home so Steve spendable income ends up looking like this:

As you can imagine it’s a nightmare for Steve and his wife and children when he comes home because the family simply do not have enough money to live on. Steve blames his company and “the stupid system” as he calls it but really he’s responsible for not prioritising his future financial needs, just like a pension!

So Bob, Geoff and Steve’s all work the same 3 month cycle and all earn the same but only Bob’s family can enjoy themselves when he comes home whilst Geoff’s family have to tighten their belts and can just about pay their bills but have nothing spare to enjoy themselves and Steve’s family don’t even have enough to pay their bills.

We can equate Bob’s Geoff’s and Steve’s 3 month cycle to adult life: Loosely, we work for 20 years, then we work another 20 years, then hopefully we retired for 20 gloriously enjoyable years. In principle therefore if we saved a third of our earnings every month of our working lives we’ll save enough to maintain our standard of living and lifestyle and be able to enjoy our retirement.

Now don’t worry, of course only the very fortunate could possibly save a third of their income every month but we’ve tried to illustrate that saving for your retirement is something that mustn’t be put off and that it needs your commitment.

Probably the biggest criticism people have about their pensions when they retire is, “Is that all I get?” But if you earn say £1,000 per month but only pay, say, £20.00 into a pension, or earn £2,000 per month and only pay maybe £50.00 or even £100.00 into a pension, or you delay starting a pension for 20-30 years, you can’t really blame your pension for not giving you very much when you retire.

So, are you a Bob, a Geoff or a Steve? We’d like to help you be a Bob and furthermore we’d like to help you get the best out of your hard earned savings in order to maximize your income in retirement. Here’s how:

Key Aspects to Pension Planning

• Contributions – Don’t scrimp. Make your pension a top priority and pay as much as you can into it;
• Investment Performance – Your money needs to be actively managed and monitored to ensure that you get the best possible returns during the years you are saving. Most people have no idea of how well or how poorly their pension fund is performing;
• Income in Retirement – Should you take an Annuity, or go for Phased Retirement or Income Drawdown, and who with?

All these factors will have a profound effect on the amount of income you’ll actually receive in retirement, but none more than your level of contributions. It is therefore absolutely vital that you seek independent advice before entering into any pension arrangement or taking income from a maturing pension.

Existing Pension Plans

Many people have one or more exiting pension plans which have not been reviewed for some years. Many of these plans are with companies who no longer exist having been taken over possibly several times. Others are old With Profit plans. It is often the case that the growth or performance of these plans has been very poor because the funds are either “closed” or no longer actively managed.

Parents and Grandparents

Did you know that you can start a pension plan for your children or grandchildren?

Yes, if there’s a new baby in the family you can actually start a pension for them paying-in up to £3,600pa, that’s £2,880 with tax relief. Just think, when they start work one day they could have already accumulated 20 years or so pension contributions. What a marvellous head start for them.

Non-working Spouses/Partners/Parents

Did you know that you can have a pension plan even though you are not in employment? It used to be that you had to be in paid employment/self-employed to pay into a pension plan but this is no longer the case. You can pay in as much as £3,600pa, although this actually only costs you £2,880 because 20% basic rate tax relief is added to what you pay”.

*References to contributions and tax relief are as per 2011/12 rules and are subject to change.

• How to contact us

If you would like to speak us about planning for retirement or retiring, or to arrange an appointment, please call us on LoCall number 08456 120 375 or 01761 411 775 or email us your contact details with a preferred contact time by clicking here.

We look forward to hearing from you.