Retirement planning

Planning for retirement is probably one of the most important things that we do, because upon decisions made while working will depend the standard of living we enjoy (or not) later in life.

The government recognises that it simply cannot provide a decent pension and despite it having announced that they link between average earnings and pensions will (probably) be restored in 2012, this will be starting from a base that has eroded for almost 20 years, through being linked to inflation during that time.

In simple terms, pensioners have been becoming progressively worse off, compared with those in work, because wages usually rise faster than inflation.

Because of this the government wishes to encourage more of us to save for our own retirement and changed the rules in April 2006 so that everyone can now invest a substantial amount of money towards their retirement.

The total fund must not to rise above a “lifetime allowance” set at £1.5 million in 2006/7 and rising in stages to £1.8 million by 2010/11 (and expected to go above this level in subsequent years).

At retirement

Under the new rules everyone is entitled to a lump sum (currently free of tax) of up to 25% of their pension fund. This can be taken at any time from age 55, even if they continue working and do not draw an income from their pension.

It is not necessary to purchase an annuity, but an income can instead be drawn from the fund at up to 100% of the annuity that could be purchased by a person of the same sex and age. This option now extends beyond age 75, subject to different limits, but it is expected that new rules will make this less attractive within the next few months, so that annuity purchase by age 75 will be more practical.

However, the critical nature of timing the change from “unsecured pension” to either “alternatively secured pension” or an annuity will disappear.

The value of investments in not guaranteed and will fluctuate. You may receive back less than you invest. The basis and levels of tax relief is subject to alteration without notice and is based on our understanding at 1st February 2007.

We do not make a charge for an initial consultation.