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Pensions

It seems that too many people are doing too little too late when it comes to providing for their retirement. At Lighthouse London we believe that putting away even a small sum of money early on can make a significant difference to the lifestyle you will enjoy when you retire.

Planning for your retirement has become more important than ever before. The State pension in our opinion is only likely to reduce in real terms over the coming years and the onus is very much on the 'individual' to plan for their own retirement.

Putting away even a small sum early on can make a big difference to the lifestyle you will enjoy when you retire. For the majority of people, it is imperative not to rely on the State alone.

Often individuals have accumulated several pensions and may wish to review the options to consolidate these into one arrangement if financially beneficial. At Lighthouse London, we pride ourselves in specialist knowledge on pensions. Our starting point is to look at the provision you have (if any), discuss and agree your income target, then design a financial plan to set a clear retirement funding strategy.

Below are just some of the pension plans and options available when building and drawing retirement savings:

Saving For Retirement

Pensions law is changing - find out what pension reform means for you. Why is pensions law changing?

The Government is making changes to encourage people to save for retirement.

People in the UK today can expect to live longer than ever before.

The number of retired people will rise by more than a third by 2050 but there will be relatively fewer working people.

Pension reform will help people save for their retirement so they don't rely only on the State pension.

What is changing?
The Pension Act 2008 introduced new duties on employers to provide access to a workplace pension scheme for most workers. As part of this, many workers will get new rights.

Employers will need to enrol most workers into a workplace pension scheme that meets certain criteria.

For those workers they must either pay a minimum contribution into a defined contribution scheme, or provide a minimum level of benefits from a defined benefit scheme.

These new regulations came into effect in October 2012, and are known as Automatic Enrolment. Please see our various guides for further information or contact us with any questions you have.

 

Stakeholder

A Stakeholder pension is a form of low cost personal pension aimed at encouraging those people who do not currently have pension provision to save for their retirement. They became available on 6th April 2001.

In order to reach as wide an audience as possible, Stakeholder pension schemes are intended to be flexible and easy to understand. Employers with 5 or more employees have had an obligation to provide their employees with access to a stakeholder pension scheme since 8th October 2001, although it is not compulsory to save for retirement with a Stakeholder Pension plan or any other savings related product.

Stakeholder Pension plans are very similar to personal pension plans. However, they offer a vastly reduced investment choice mainly based on the providers' own funds that go hand in hand with the lower charges. They are individual pension arrangements, meaning that they are personal and portable - you can take them with you if you change employment.

 

Personal Pensions

Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who did not have access to a company pension scheme. As with all pensions, following the sweeping changes made on the 6th April 2006 to pension legislation, these contracts are now very flexible and can allow contributions (that are eligible for tax relief) to be made of up to the lower of 100% of your earnings or the annual allowance (set by HMRC).

All personal pensions work on a 'money purchase' basis. This means that the money you save each month or each year into your personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. Most personal pensions now offer a very wide fund choice and are not always restricted to one providers' investment funds.

 

Self Invested Personal Pension Scheme

A SIPP is a Self Invested Personal Pension Scheme that provides you with the option of choosing when, where and how you invest the assets of your pension fund. SIPPs have been around since 1989, but after the introduction of Pension Simplification legislation in 2006, became more accessible. More investors are feeling comfortable with taking control of their pension planning.

With a SIPP you are free to invest in:
Unit Trusts / Open Ended Investment Companies (OEICs)
Investment Trusts
Insurance Company Funds
UK Gilts / Corporate Bonds / UK, US & European Shares
Own Company Shares
Cash & Deposit Accounts
Commercial Property

The most important thing to remember is that the range of available investments depends largely on the choice of SIPP provider. Ultimately, it is down to the trustees of your pension plan to agree whether they are happy to accept your investment choices into the SIPP.

 

At Retirement - Drawing Benefits


Annuities

Annuities are used to provide a pension income, which, in the case of pensions, is usually guaranteed for life. The pension lump sum is exchanged for a pension income. Once the annuity has been bought, the contract cannot be reversed and the pension lump sum becomes the permanent property of the annuity provider.

The level of income that you will receive from an annuity depends upon several main factors:
The level of investment
Age of 'annuitant'
Health

In general, the older an annuitant the higher the income which can be secured at the point of annuity purchase.

 

Annuities can be set up to provide different benefits/options

A few examples follow:-
Spouses pension (to protect a spouse by providing an income, following the death of the annuitant).

Guaranteed payment periods; 5 years is typical but 10 year guarantees are possible.

Escalation of benefits; income can be protected from inflation - RPI linked escalation, alternatively a fixed percentage increased annually can be secured at outset e.g. 5%.

Annuity income can be linked to investment performance for example by a 'With Profit Annuity' or 'Unit Linked Annuity'.

 

Flexi - Access Drawdown

Income Drawdown is a popular alternative to buying a lifetime annuity. It allows you to draw an income from your pension fund while the fund remains invested. There is no maximum level of income you can draw, however only 25% of the pension pot is tax free, the remaining income taxed at your income tax band. You can also use your remaining fund to buy a lifetime annuity at any time.

Anyone in a personal or stakeholder pension, or SIPP scheme, can use an income drawdown option. However, some pension providers have a minimum fund value requirement for this.

If you are in an employer's scheme that doesn't offer an income drawdown and you want to use it, you must first transfer your pension rights from that scheme into a personal pension scheme.

FINANCIAL

GUIDES

A Guide to Retirement Planning