Great British Finance

PENSION PLANNING

A pension gives you a retirement income, paid for by investments built up during your working life. The State Pension is funded by your National Insurance contributions but only provides a basic income. You may need an additional pension to retire comfortably.
If you are self-employed, you will not qualify for the additional State Pension, also known as the State Second Pension, formerly SERPS. However, you can take out a private pension such as a personal pension or a stakeholder pension. The amount you get at retirement depends upon how much money has been paid in, how well it has been invested and the age at which you retire.
It is important that you consider all your options before making a decision.
Please contact one of our qualified Financial Advisers to discuss the option available to you.

COMPANY PENSIONS

Company pensions are set up by employers, for their employees. These can be "final salary" or "defined benefit" schemes. These are schemes where a Trust is set up for the members. Money is paid in from the company, the members or both. The money is then invested as per the guidance of the Trustees.
Members get benefits in accordance with their contractual terms (typically a proportion of the final salary for each year that they have worked there). These are expressed as a pension value, but normally members can opt to reduce their pension by taking some of the money as a cash lump sum on retirement.
The fund is monitored by Actuaries, whose job is to determine whether or not there will be sufficient assets to meet the pension payments. If the fund is doing well, the company, and in theory even the employees, might be able to reduce or stop their payments. If the scheme does badly (e.g. its investments fall in value) then the COMPANY is expected to make up any shortfall.
Alternatively, an employer may set up a "defined contribution" or "money purchase" scheme. In this case the monthly contributions are put into a fund earmarked for that particular employee who, when he or she retires, is able to take a tax free lump sum and, with the balance, buy an "annuity."
Annuities are sold by pension providers and insurance companies and guarantee the policyholder an income throughout his or her retirement.
Should you leave this employer, it may be possible for you to transfer these benefits to another scheme, if required.

PERSONAL PENSIONS

Many employees prefer to set up personal pensions of their own. Those who are self-employed may do so also, of course.
In this case, as with defined contribution schemes, contributions are set aside in the pension plan and used to purchase an annuity before age 75.
One of the great attractions of pension schemes as a method of saving for retirement is that there is tax relief on contributions up to government set contribution limits. There is no other investment you can make which will give you 20% or 40% tax relief, depending on the highest rate of tax you pay.

STAKEHOLDER PENSIONS

With government's introduction of Stakeholder pensions in 2001 there are now plenty of low-cost pension offerings being put out by the pensions providers to enable most people, especially those on lower incomes (even those not working), to set aside funds for their retirement.
The key to Stakeholder as to any other pension is to start contributing as early as possible and keep making contributions for as long as possible. This way your pension pot has time to grow and for the investment returns on the fund to compound through reinvestment over many years. The result should be a significant sum of money to invest when you retire.
If you haven't set up a pension yet, then now may be the time to start. There is no time like the present.
Setting up a pension is an important long-term investment decision. Even if retirement seems a long way off right now, just think of what life would be like if a state pension of the equivalent of £100 a week was all you had to live on...