1. A Guide toRetirementPlanningDeveloping strategies to accumulate wealthin order for you to enjoy your retirement years

2. Welcome CONTENTS Contents 04 Expectedretirement incomes 16 Is it time to getmore flexible withhit five-year low your money? A Guide toTaking some practical steps now could Remove the cap on the retirementmean a more comfortable retirementincome you can take Retirement Planning 06 Different types ofoccupational pensionsMost employers are required to offer 17 Self-InvestedPersonal PensionsTaking more control over yourtheir employees the chance to join apension fund investment decisions Welcome to A Guide to Retirement Planning. The State Pension alone pension scheme wont be enough to ensure a comfortable retirement so its worth reviewing your options as soon as you can to make sure you can afford 08 Enrolling workers into 18 Helping you maximiseyour retirement income lifes little pleasures once you retire. a workplace pension Why your annuity will have to lastWhen it comes to planning for retirement, time is your friend. A good Saving for your retirement arranged you for longer retirement investment strategy starts with a longer-term approach. Thisthrough your employer usually begins with more adventurous investing to build growth and then moves into less risky options to safeguard that growth as the planning 10 Tax relief on pension20 Getting the bestannuity nears its end. contributions How to substantially increase yourIdeally saving should start as early as you can. However its never too Encouraging people to invest more pension income late to start and the earlier you start the greater the benefits. People dont towards their retirement start out planning to fail, but many do fail to plan.Retirement is something we all look forward to and, even if it seems a long way off, the crucial question is Do you have enough saved for a Want to discover what the future 12 Saving for yourretirement 21 Tracing a personal oroccupational pensionscheme comfortable retirement?will look like?The sooner you start saving for yourIt can be easy to lose track of aWherever you are with your retirement savings, dont be put off fromretirement the more secure your pension if you change jobsthrough taking action there are still steps you could take to increase the income Even if your retirement planning is up future will beyour working life youll get when you retire. and running, thats not the end of the 22 story. Its important that you reviewWe can work with you to develop strategies to accumulate wealth in order for you to enjoy your retirement years, by evaluating your goals, your contributions, particularly if you have a change of circumstances. If 13 Personal pension plansProviding retirement benefits based onPension consolidationBringing your pensions under personal circumstances and projected living costs. the accumulation of a pot of moneyone roof you dont know how your planning is doing, you cant know what your Set clear goals for your retirement Take control of your existing retirement savings Maximisefuture will look like. To discuss how we could help you plan for your 14 Changes to StatePension age your use of generous tax allowances Tailor anHelping to manage the cost of investment strategy appropriate to your needs retirement, please contact us forState Pensions because of increasing Maximise your post-tax income in retirement further information. life expectancy Adapt to changing circumstances02A Guide to Retirement Planning A Guide to Retirement Planning 03 3. A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGBy taking some practical stepsnow, workers and imminentretirees could ensure a morecomfortable retirement. For those whoare still working, it has never been amore important time tosave into a pension.Expected retirementincomes hit five-year lowTaking some practical steps now could mean a more comfortable retirementPeople retiring in 2012 expect to live onfinancially comfortable comparedIt is concerning that expectedan average annual income of 15,500 with 31 per cent of women. However, retirement incomes are going down,over 1,000 a year less (6 per cent) thannearly one in five (18 per cent) of those while pensioner expenditure is going up.those who retired in 2011. The figures planning to retire in 2012 have no idea However, by taking some practical stepscome from Prudentials unique Class of of the level of income they will need innow, workers and imminent retirees2012 research, which provides insights order to live comfortably.could ensure a more comfortableinto the financial expectations of Britons retirement. For those who are stillplanning to retire in the next 12 months.As a sign of theworking, it has never been a more ongoing financial important time to save into a pension.Expected annualchallenges facing thoseretirement incomes However, even if you are due toThe results of Prudentials annual survey, due to retire in 2012, oneretire this year, you could still makefirst carried out in 2008, show that in five will get by on an your retirement funds generateexpected annual retirement incomes expected annual incomebetter incomes.have dropped by more than 16 per cent of less than 10,000.in the last five years. The Class of 2008retirees looked forward to a total annual Fewer than two in five Need ideas about savingincome, including private, company (37 per cent) of the Class for your retirement?and State pensions, of approximately of 2012 say that they18,600 3,100 a year more than those To discuss how we could help you to make have saved enough to more informed pension saving and retirementplanning to retire this year. secure a comfortable income decisions, please contact us.As a sign of the ongoing financial retirement.challenges facing those due to retirein 2012, one in five will get by on an Source Online survey conducted byexpected annual income of less thanResearch Plus on behalf of Prudential10,000. Fewer than two in five (37The perfect storm between 2 and 12 December 2011per cent) of the Class of 2012 say thatThe current economic climate has among 9,614 UK non-retired adultsthey have saved enough to secure a created the perfect storm for people inaged 45+, including 1,003 retiring incomfortable retirement.the run-up to retirement. The impact2012. All retirement income figures of the credit crunch, banking crisis, within this release are rounded to theGender differencerecession and concerns over the nearest hundred.Men are more optimistic about theirEurozone has been reflected in the factretirement than women, with 45 per that expected retirement income levelscent of men confident they will be have hit a five-year low.04A Guide to Retirement PlanningA Guide to Retirement Planning 05 4. A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGOne of the ways in which youcan top up your occupational pension scheme is by paying into an AVC run by your employer, if they offer this option.Different types ofoccupational pensionsMost employers are required to offer their employeesthe chance to join a pension schemeThere are different typesand reduced administration costs. YourTypes of AVC include:of occupational pensions employer doesnt have to contributethat are available.towards the scheme, but might agree Added years AVC to do so. This only applies to final salary (definedTypes of benefit) schemes. Contributions areoccupational pension Pension contributions made by you used to buy added years to increaseFinal salary (defined benefit) schemes and, your employer, go into the fundthe number of years of service in yourThese are also known as defined benefiteach month. When you retire you can main scheme.schemes as they guarantee a set level of take a tax-free lump sum from the fundpension when you retire. Your pensionand use the rest to buy an annuity, In-house AVCis based on an annual multiple of your which will provide a regular income for This is run through your employerspay and length of time in the scheme the rest of your life.occupational scheme. Your employertypically one-60th of your final salarybears the administrative costs, meaningfor every year of service. You should be able to consolidate yourthat topping up this way is likely to be money purchase pension plan to a newcheaper for you than topping up yourFinal salary schemes are expensive employers scheme, and should alwayspension by other means.and risky for the employer, who has to obtain professional advice to see if thisinvest to fund the sums promised tois the best option for you. Matched AVCseach employer. They are gradually beingThese apply to defined contribution/replaced by money purchase plans,Stakeholder money purchase schemes. The majorwhich hold more risk for the employee. pension schemes incentive to buy matched AVCs is that If your employer has five or more the employer will match the employeesMoney purchase (definedemployees, and doesnt offer an contribution to a defined level, forcontribution) schemesoccupational or group pension plan to example; an employer could pay 1 perContributions are normally made by which they contribute at least 3 percent for every 1 per cent an employeeyou and your employer. The size of yourcent of your pay, they must offer a pays, up to a specified maximum.pension pot will depend on how muchworkplace stakeholder scheme. Yourhas been contributed, the performanceemployer doesnt have to contribute,Bolt-in schemesof the underlying investment funds and but may agree to do so. In-house schemes in which employeeshow long its been invested. bear the administrative cost. Additional VoluntaryGroup personal Contributions (AVCs)Money purchase AVCpension plansOne of the ways in which you can topYou make the contributions that buildAn employer sets up a number ofup your occupational pension scheme up your pension fund and bear thepersonal pensions for employees, inis by paying into an AVC run by youradministrative costs. Your employerorder to achieve economies of scaleemployer, if they offer this option.may agree to match your contributions.06A Guide to Retirement PlanningA Guide to Retirement Planning 07 5. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNINGEnrolling workers intoa workplace pensionscheme, you may be entitled to your employers contribution. Your employer will let you know if this is the case. your earnings. Your employer will let you know what these are. The government has set minimum amounts for defined These minimum percentages do not apply to all of your salary. They apply to what you earn over aSaving for your retirement arranged through your employercontribution pension schemes. minimum amount (currently 5,035) What employers canup to a maximum limit (currentlyStarting from October 2012, some when you retire, you may want to consideremployers will follow sometime after this, choose to doMinimum that has to be33,540). This is sometimes calledemployers will have to enrol workers contributing to a workplace pension. over several years. Your employer will giveEmployers are allowed to delay the date contributed in totalqualifying earnings.into a workplace pension, if they meet The full basic State Pension in 2012/13 is you the exact date nearer the time.they enrol you into a pension, by up to The government has set a minimumcertain criteria.107.45 per week for a single person. three months from the deadline given to percentage that has to be contributed So for example, for someone whoIf youre being automatically enrolled,them by the government. into your workplace pension in total. Itearns 18,000 a year, the minimumWorkplaceThe government is getting employers to your employer must let you know in is made up of your contribution, your percentages are calculated on thepension what it is?enrol their workers automatically into writing: If the pension is a defined benefit oremployers contribution and the tax difference between 18,000 and 5,035,A workplace pension is a way of saving a workplace pension so its easier forhybrid pension scheme, and you have relief, added together. The minimum willwhich is 12,965.for your retirement arranged through people to start saving.n he date of your enrolmentTan existing right to join your employers start at two per cent and increase toyour employer.n he pension scheme you will beTpension, your employer can delayeight per cent over the next few years. Contribute more Benefits of staying in a enrolled intoenrolling you for several years.than the minimumHow this could affect youworkplace pensionn ow much will go into your pensionHMinimum that has to Your employer can choose to pay moreYour employer will enrol you into aA pension is a way of saving money to(as a percentage of your salary or asIf your employer does delay, they havebe contributed by into your workplace pension than theworkplace pension if you:provide you with an income when youan amount) to let you know in writing. If you want your employer minimum required. If so, you can choose retire. There are many benefits to havingn ow you can opt out of the pension,Hto join your workplace pension in the As part of the overall percentage, theto reduce your own contribution. ButnA re not already in a pension at work a pension at work. if you want to meantime, your employer must accept government has also set a minimum the overall contribution must still meetnA re aged 22 or overyour request. percentage that has to be contributed at least the minimum level set by thenA re under State Pension ageYour employer will pay into it. This Your employer must also: by your employer.This will start at onegovernment. You can also choose tonEarn more than 7,475.00 a yearcontribution from your employer Salary sacrificeper cent and increase to three per cent increase your contribution.nW ork in the UK means your pension can build up more n ccept your request to join theirAEmployers can use salary sacrifice. over the next few years. quickly than if you were saving for your workplace pension, if you have This is an arrangement that must beYour employer will write to you to retirement on your own.previously opted out or stoppedagreed between you and your employer.explain how the changes affect you. You paying - your employer must accept You give up part of your pay and yourcan choose to opt out of this pension, The government will also pay into it, in your request once in a 12 monthemployer pays this amount into yourif you want to. But if you stay in youllthe form of tax relief. This means someperiod but can choose to acceptpension pot instead.It is also known ashave your own pension, which you of the money you earn, instead of goingfurther requests if they want to salary exchange or SMART scheme.get when you retire. If youre already to the government as income tax, now n Enrol you back into the pension atin a pension at work and it meets thegoes into your pension instead.regular intervals (usually every three What employers cant dogovernments new standards, this will years), if you meet the eligibility criterianot affect you.Your workplace pension belongs toand arent in a workplace pensionThe new law states certain things you, even if you leave your employer n ay your full contributions on time, toPemployers cannot do.The employer cant:When this is happening in the future. As your employer will whoever runs your pension schemeWhen you will be enrolled depends on automatically enrol you into this pension,n Offer incentives to workers to opt outthe size of the organisation you workits a simple way of saving while you earn.If youre already in a workplace of their workplace pensionfor. Very large employers are doing itpension, your employer must confirmn Offer incentives to workers duringfirst, in late 2012 and early 2013. OtherBeing in a workplace pension is an in writing that the pension meets therecruitment or imply that a workeremployers will follow sometime after this, important step towards giving yourself governments new standards.can only be employed if they opt outover several years. Your employer will the lifestyle you would like in later life. of their workplace pensiongive you the exact date nearer the time.If youre not being enrolled and youren Unfairly dismiss a worker because What employers not already in a workplace pension,they stay in their workplace pensionWhy this is happeningmust do by law your employer must:People are living longer. You could be Your employer must let you know in writingMinimum amount thatretired for twenty years and you need to if youre being enrolled into a workplacen Explain in writing that you have ahas to be paid in to yourthink about how youll fund it.pension or not. When youll be enrolledright to join a workplace pension workplace pension depends on the size of the organisation youn Explain to you how you can join The amounts paid in by you, yourThe State Pension is a foundation for your work for. Very large employers are doingemployer and the government (tax relief),retirement. But if you want to have more it first, in late 2012 and early 2013. Other If you ask your employer to join a pension are usually calculated as a percentage of08 A Guide to Retirement PlanningA Guide to Retirement Planning09 6. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNINGT relief on axpension contributionsEncouraging people to invest more towards their retirementtheyve got no income, you can pay in is not applicable in the tax year thatup to 2,880 a year - which becomes retirement benefits are drawn.The aim of tax relief is to encourage basic rate tax payer puts into a pension1988 - dont offer a relief at source 3,600 with tax relief.people to invest more towards their scheme, the government pays 20.scheme whereby they claim back taxOther pensionretirement and rely less on the state for at the basic rate. Instead youll need to If the pension scheme rules allow it youtax advantagesincome after they stop working. Those Even those who dont pay tax but areclaim the tax relief youre due through may also be able to put money intoThe pension fund doesnt paywho receive below a certain threshold still contributing to a pension (maybeyour tax return, or if you dont complete someone elsesoccupational or public tax on any capital gains orin pension income currently 137.35 because their partner is providing thea tax return by telephoning or writing to servicescheme. Youll not get tax relief investment income.if you are single or 209.70 if you havemoney) can still receive tax relief at 20 HM Revenue & Customs (HMRC).on your contribution but the other persona partner receive a top up through aper cent on contributions up to 2,880can get relief either through their tax Also, when your pension maturesmeans-tested benefit called pension a year: the government tops this amount Effect of pension return or by making a claim to HMRC.you can take up to 25 per cent of itcredit. The more people that save for up to a total of 3,600.contributions on age- as a tax-free lump sum, provided yourthemselves, the fewer who will need torelated allowancesLimits on tax reliefpension scheme rules allow it, and yourclaim pension credit. If you are a higher rate tax payer, you If you receive an age-related PersonalYou can save as much as you like into total savings are within the Lifetimecan claim additional tax relief through Allowance or Married Couples any number and type of registered Allowance for the year in which you takeHow tax relief on pension your Self assessment return. The relief AllowanceHMRC will subtract thepension schemes and receive tax reliefyour benefit.contributions works ranges from 1 per cent to 20 per cent amount you contribute plus the basicon contributions of up to 100 per cent ofThe way you receive tax relief on pension more, depending on how much you earnrate tax from your total income and use your earnings (salary and other earnedFor 2012/13, the Lifetime Allowancecontributions depends on whether youabove the higher rate tax band and howthe reduced figure to work out the valueincome) each year, provided you paid thefor pension savings for individuals waspay into an occupational, public servicemuch you contribute to your pension. If of your allowances. This may have the contribution before age 75. reduced to 1.5 million. The Lifetimeor personalpension scheme. some of your contribution comes fromeffect of increasing these allowances Allowance is the maximum amount ofearnings that have been taxed at 40 per if your income was above the relevant But the amount you save each year pension and/or lump sum that you can getOccupationalor publiccent, then you will get 40 per cent tax income limit that applies.toward a pension from which you from your pension schemes that benefitservice pension schemes relief. But if some comes from the 20 benefit from tax relief is subject to anfrom tax relief.Usually your employer takes the per cent tax band, you will get the lower What happensAnnual Allowance.pension contributions from your pay rate of relief on that part.if you dont pay tax? There is no limit on the amount ofbefore deducting tax (but not NationalIf you dont pay tax you can still pay into Annual Allowancebenefits that your pension scheme canInsurance contributions). You only payLikewise, the highest rate taxpayers whoa personal pension scheme and benefit Formoney purchase schemes, its thepay you. However, if your pension schemetax on whats left. So whether you paypay 50 per cent income tax on the top from basic rate tax relief (20 per cent)limit on how much can be paid by in total gives you benefits of more than yourtax at basic, higher or additional rateyou slice of their earnings anything over on the first 2,880 a year you put in.by you and your employer in a tax yearLifetime Allowance you will pay an extrareceive the full relief straightaway. 150,000 can benefit from between 1 per In practice this means that if you paytax charge on the amount over yourcent and 30 per cent additional tax relief. 2,880 the government will top up yourForfinal salaryandcareer Lifetime Allowance. This tax charge isIf youre a GP or dentist and contributecontribution to make it 3,600. averageschemes, the limit is on the valuecalled the Lifetime Allowance charge.to a public service scheme you areYou can put 100 per cent of your annual of the increase in your pension built upintaxed as self-employed for part ofearnings in a pension if you can afford There is no tax reliefa tax year When your pensionyour earnings so should claim tax reliefit, and will receive tax relief on up tofor contributions abovematures you can take upthrough your Self assessment tax return.50,000 of contributions in the current this amount The Annual Allowancetax year, meaning someone earning Tax relief if you put money into someonefor the tax year to 25 per cent of it as a tax-Personal pension plans200,000 would receive 25,000 from elses pension scheme 2012/13 is 50,000. free lump sum, provided yourEvery pound you pay into a privatethe government towards their pension. Contributions paid in excess of thepension scheme rules allowpersonal pension scheme is matchedYou can put money into someoneallowance or the value of pensions that it, and your total savings arewith tax relief by the government Retirement annuitieselses personal pension - like your accrue in excess of the allowance giveeffectively any Income Tax you have paidUnlike personal pension providers, most husband, wife, civil partner, child orrise to a tax charge at the individuals within the Lifetime Allowanceon that pound is paid into your pension retirement annuity providers - personal grandchilds. Theyll get tax reliefown marginal rate. for the year in which youfund. This means that for every 80 a pension schemes set up before Julywont affect your own tax bill. IfFor each scheme, the Annual Allowancetake your benefit.10 A Guide to Retirement Planning A Guide to Retirement Planning11 7. A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNING Personal pension plans Providing retirement benefits based on the accumulation of a pot of moneySaving for A personal pension plan is a type fund can be used to buy an annuity with ofdefined contributionarrangement.an insurance company. This scheme provides retirement benefits based on the accumulation of Would a personal pension a pot of money, accumulated through plan be good for you?your retirement the investment of contributions paid by Your decision will largely depend on both the employee and the employer. how much you can afford to save for It is essentially an investment policyyour pension and how much you will that provides an income in retirement.get from other pensions. It is available to any UK resident who is under 75 years of age.Personal pension plans may be suitable for:The sooner you start saving for your retirement The policyholder contributes to the plan, n eople who are self-employed Pthe more secure your future will bethe money is invested and a fund is built up. n eople who are not working but can P afford to pay for a pensionSaving for your retirement may not seemFor women born after 5 April 1950 but The amount of pension payable when then Employees whose employer does notimportant when youre starting out. But thebefore 6 December 1953, their State Pension policyholder retires is dependent upon: offer an occupational pension schemesooner you start saving for your retirementage is between 60 and 65. n Employees who have the option tothe more secure your future will be. n he amount of money paid T pay into an occupational pension, but Increase in State into the scheme choose not toHaving a personal or Pension age to 66 n ow well the investment H n Employees on a moderate incomeoccupational pension Under the Pensions Act 2011 womens State funds perform who wish to top up the moneyThe sooner you start putting money intoPension age will increase more quickly to n he annuity rate at the date of T they would get from an Saving for youryour own personal or occupational pension, 65 between April 2016 and November 2018.retirement (an annuity rate is theoccupational pensionthe more time you have for it to build up. From December 2018 the State Pensionretirement mayfactor used to convert the pot of age for both men and women will start tonot seem importantmoney into a pension)A personal pension plan mayWhen planning your retirement there areincrease to reach 66 in October 2020. when youre startingnot be the best choice if:three main types of pension you need toThe policyholder can retire atn Your employer offers an occupational out. But the sooner youconsider. These are State Pensions, personal These changes affect you if youre: any age after 55 (subject to plan pension schemepensions and occupational pensions.start saving for your restrictions).When the policyholder does n Your employer offers access to a n woman born on or after 6 April 1953 A retirement the more retire, they can generally take up to 25stakeholder pension scheme,State Pensionn man born on or after 6 December 1953 A secure your futureper cent of the value of their fund as awith an employer contributionThe Sate Pension is paid to those who aretax-free lump sum. The remainder of the will be.eligible,over State Pension age and who The current law already provides for thehave claimed it. You may be eligible for the State Pension age to increase to:following types of State Pension:There are a number of rules that can n 7 between 2034 and 2036 6influence your retirement planning. ToBasic State Pension n 8 between 2044 and 2046 6discover how we could help you saveAdditional State Pensionfor your retirement please contact usFor men born before 6 December 1953, thefor further information.current State Pension age is 65.12 A Guide to Retirement PlanningA Guide to Retirement Planning13 8. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNINGChanges to How much is the basic State Pension? The following table gives a simple overview of the maximum basic State Pension you may receive.State Pension age CircumstancesBasic State Pension rate per week, for 2012/13 Single man or woman 107.45 Married man or woman or civil partner 107.45Helping to manage the cost of State Pensions (who qualify with their own National Insurance contributions)because of increasing life expectancyMarried man, woman or civil partner 64.40 (using his wifes, her husbands or theirIn his Autumn Statement, onUnder the announcement these peopleIn 2012/13, you need to have 5,564 or civil partners National Insurance29 November 2011, the Chancellor of thewill now have a State Pension age of 67. more of such earnings if:contributions record)Exchequer, George Osborne announcedthat the State Pension age will nowChanges to State Pension n Youre an employeeincrease to 67 between 2026 and 2028.age beyond 67n Youre paying National Date of birthApproximate State Pension ageThe government said it took this decisionState Pension age is planned to start to Insurance Contributions as a6 April 1960 to 5 May 1960 66 years and 1 monthbecause of increasing life expectancy, toincrease to 68 from 2044 and this wouldself-employed person6 May 1960 to 5 June 196066 years and 2 monthshelp manage the cost of State Pensions. If affect anyone born after 5 April 1977. 6 June 1960 to 5 July 1960 66 years and 3 monthsyou were born in the 1960s, find out howHow many qualifying 6 July 1960 to 5 August 1960 66 years and 4 monthsyou could be affected. The government is considering how the Stateyears do you need?6 August 1960 to 5 September 196066 years and 5 months Pension age could better reflect changes in6 September 1960 to 5 October 1960 66 years and 6 monthsUnder current legislation, State Pension life expectancy in the future. This is likely to n he number of qualifying years youT 6 October 1960 to 5 November 196066 years and 7 monthsage is planned to increase to: mean that the existing timetable to increase need for a full basic State Pension 6 November 1960 to 5 December 1960 66 years and 8 months State Pension age to 68 will be revised. depends on your age and whether 6 December 1960 to 5 January 196166 years and 9 monthsn 6 between November 2018 and6 youre a man or a woman 6 January 1961 to 5 February 196166 years and 10 monthsOctober 2020 Basic State Pensionn Men born before 6 April 1945 usually 6 February 1961 to 5 March 196166 years and 11 monthsn 7 between 2034 and 20366- what is it?need 44 qualifying years6 March 1961 to 5 April 1969 67 yearsn 8 between 2044 and 20466Anyone who has enough qualifying n omen born before 6 April 1950W years from their National Insurance (NI) usually need 39 qualifying yearsThe government has announced that thecontributions record is entitled to some n Men born on or after 6 April 1945 need n Looking after children under 12 years When entitlement to the additionalIf you were contracted out through oneincrease to 67 will now take place between basic State Pension. You can receive 30 qualifying years old and claiming Child Benefitpension is calculated, the earnings onof these schemes on 6 April 2012, you2026 and 2028. a basic State Pension based on the n omen born on or after 6 April 1950W n Caring for a sick or disabled personwhich it is based are revalued in line with will have automatically been brought qualifying years of National Insurance need 30 qualifying yearsfor more than 20 hours a week andthe growth in average earnings. back into the additional State Pension.This change to the timetable is not yet lawcontributions (NICs) you have. claiming Carers Credit Youll have commenced building upand willrequire the approval ofParliament.Additional State Pensionn registered foster carer and claimingAContracting out the additional State Pension from this time. When can you get a basic An additional State Pension can give youCarers Credit additional State PensionWho is affected by State Pension? extra money on top of your basic Staten eceiving certain other benefits due toRIf youre an employee with annual If you are alreadythe announcement?State Pension age is the earliest youPension. It is also sometimes called theillness or disabilityearnings above a certain amount (5,564 contracted outThis will mean that people born after 5can get a basic State Pension. You haveState Second Pension (it used to be called in 2012/13) - youmay be able to choose If you are already contracted out throughApril 1961 but before 6 April 1969 will have to claim it. You can also choose to putthe State Earnings Related Pension Scheme If youre employed and have a pensiontoleave the additional State Pension.either type of scheme, you will:a State Pension age of 67. off claiming (defer) and take your State (SERPS)). You may be entitled to additional then you may be contracted out Pension later. If you choose to defer youState Pension if youre employed, looking of the additional State Pension. Changes to contracted Be able to continue to make your ownPeople born after 5 April 1960 but beforecould receive an extra State Pension or aafter a child or caring for someone.This means youre unlikely to be out pensions from 2012contributions to the scheme6 April 1961 willreach State Pension agelump-sum payment as well as your State contributing towards the additionalThe rules for contracting out oftheBe able to continue to benefit from anybetween 66 and 67 as shown in the table. Pension when you do claim. Who gets the additional State Pension. additional State Pension changed on 6 April employer contributions to the schemeState Pension? 2012. The changes mean that contracting No longer be able to benefit from anyUnder the Pensions Act 2007, people born Will you get a basic You may be contributing to or receiving SERPS and theout will not be possible through: rebate of National Insurance contributionsafter 5 April 1969 but before 6 April 1977 State Pension? credits towards the additional StateState Second Pensionalready have a State Pension age of 67.You can get a basic State Pension by Pension if youre below State Pension age The additional State Pension has gonen money-purchase (defined- A Contracting out through an occupational paying or being credited with enough and youre: under different names in the past. You contribution) occupationalsalary-related (defined-benefit) schemeFor people born after 5 April 1968 but National Insurance contributions (NICs)used to receive additional State Pension pension schemewill still be allowed. However, contractingbefore 6 April 1969, their State Pension towardsqualifying years before Staten Employed and earning over 5,564 Inthrough the State Earnings-Related n personal pension or a A out for these schemes will be reviewed inagewould have been between 66 and 67. Pension age. 2012/13 (from any one job) Pension Scheme (SERPS).stakeholder pension the future.14 A Guide to Retirement Planning A Guide to Retirement Planning 15 9. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNINGIs it time to get moreSelf-Investedflexible with your money?Remove the cap on the retirement income you can takePersonal PensionsTaking more control over your pension fund investment decisionsPension legislation is always on the movemethod of accessing their pension Pension contract If you would like to have more control overThousands of fundsin commercial property, you may also haveand keeping up to date with the latest income, some will want to take advantageDepending on your circumstances, your own pension fund and be able to You can typically choose from thousands periods without rental income and, in somechanges could open up new opportunitiesof these enhanced drawdown facilities.all these changes may well sound likemake investment decisions yourself withof funds run by top managers as well as cases, the pension fund may need to sellfor you in retirement. On 6 April 2011,good news, but theres one important the option of our professional help, a Self- pick individual shares, bonds, gilts, uniton the property when the market is not atthe government announced that you no Flexible drawdown could, for example, bething to be aware of. Just because the Invested Personal Pension (SIPP) could betrusts, investment trusts, exchange tradedits strongest. Because there may be manylonger have to take pension benefits byused to meet one-off large expenditurerules about when and how you takethe retirement planning solution to discuss. funds, cash and commercial property (buttransactions moving investments around, thethe age of 75. items as they arise or to optimise your tax pension benefits have changed, it not private property). Also, you have moreadministrative costs are higher than those of liabilities. It could also be a way to pass doesnt mean your pension contract willMore accessiblitycontrol over moving your money to another a normal pension fund.Previously, any tax-free cash lump sum money through the generations, either byhave changed as well.A SIPP is a personal pension wrapper thatinvestment institution, rather than beinghad to be taken by age 75 and a pensiongifting regular payments, for exampleoffers individuals greater freedom of choice tied if a fund under-performs.The tax benefits and governing rulesset up at the same time. The onlyinto trusts, or as pension contributions to If the terms of your contract have than conventional personal pensions. of SIPPs may change in the future. Thealternative was if you had a big enoughchildren using normal expenditure rules not been updated to reflect the newHowever, they are more complex thanOnce invested in your pension, the fundslevel of pension benefits payable cannotfund to take an income directly from itso as to help avoid Inheritance Tax.legislation, you could find that you cant conventional products and it is essentialgrow free of UK Capital Gains Tax and be guaranteed as they will depend on(known as income drawdown).take advantage of them. You could stillyou seek expert professional advice. Income Tax (tax deducted from dividends interest rates when you start taking your Paying Income Tax find yourself obliged to buy an annuity atcannot be reclaimed). benefits. The value of your SIPP may be lessThe governments new rules affectIn moving money out of your pension age 75. And if you havent taken your tax- SIPPs allow investors to choose their ownthan you expected if you stop or reducebenefits in personal pensions and moneyfund before you die, you will be paying free lump sum at that age, you could still investments or appoint an investment manager Tax benefitscontributions, or if you take your pensionpurchase occupational pension schemes. Income Tax on such payments but at alose the opportunity to do so. to look after the portfolio on their behalf. There are significant tax benefits. The earlier than you had planned. rate that is lower than the 55 per cent tax government contributes 20 per centGaining more control charge payable on a lump-sum payment Individuals have to appoint a trustee to of every gross contribution you pay A SIPP could be a suitableMany of these changes were designed to from your pension fund when you die. oversee the operation of the SIPP but, meaning that a 1,000 investment in option if you:limit what the government clearly seeshaving done that, the individual can your SIPP costs you just 800. If you areas over-generous tax relief concessions. Another age-restricted benefit where the effectively run the pension fund on his or a higher or additional rate taxpayer, the n ould like to have more control over WBut other changes have created the veryrules have been eased is the opportunity her own. tax benefits could be even greater. In theyour retirement fund and the freedom toappealing prospect, for people agedto take tax-free cash typically a quarter above example, higher rate (40 per cent)make your own investment decisions, or55 or more, of gaining more controlof your pension pot when you first start A fully fledged SIPP can accommodate taxpayers could claim back as much as a prefer to appoint investment managersover when and how they can use their to take your pension benefits. Until April a wide range of investments under itsfurther 200 via their tax return. Additional to do this for you and are prepared toretirement savings.2011, if you hadnt taken your tax-freeumbrella, including shares, bonds, cash, rate (50 per cent) taxpayers could claimpay a higher cost for this facility cash by age 75, you lost the chance to docommercial property, hedge funds and back as much as a further 300. n ould like a wide range of investments WUnder the current rules, if you meet certain so. Now that restriction is removed too. private equity.to choose fromeligibility criteria, you can now take asOther considerationsn ant to consolidate your existing Wmuch as you want from your pension,You cannot draw on a SIPP pension beforepension(s) into a more flexible planwithout the maximum income restrictionsage 55 and you should be mindful of the factn Need a tax-efficient way to purchasethat apply to conventional drawdownthat youll need to spend time managing commercial propertyarrangements. To be eligible for thisyour investments. Where investment is madefacility known as flexible drawdownyou have to show that you already have asecure pension income of 20,000.Enhanceddrawdown facilitiesWhile, for many people, buying an annuityis likely to remain the most appropriate16A Guide to Retirement PlanningA Guide to Retirement Planning17 10. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNING Enhanced annuitiesImmediate needs annuities With-profits annuities have the normal If you are a smoker, in poor health orThese are designed for an elderly personannuity options, namely single or joint life,Helping you have a life reducing medical conditionwho is terminally ill and about to enterand a choice of guaranteed periods and it is worth ascertaining whether youa nursing home for the final years of payment frequencies. are eligible for an enhanced annuity. their life. A lump sum payment will buy This may pay a higher income becausean immediate needs annuity, which Flexible annuitiesmaximise your a medical condition, which is likelyguarantees payment of the elderly A flexible annuity combines the to reduce your lifespan, means that persons care until they die. These advantages of an income for life with the insurer probably will not have to annuities are expected to normally pay outthe advantages of a certain amount pay out for as long as for someone in for around two to three years only. of flexibility and control over income good health.payments, investment options and deathretirement income With profits annuitiesbenefits. There are three basic types ofWith profit annuities pay an income for life, enhanced annuities: but the insurance company invests yourWhen a traditional (non-profit) annuity pension fund in a with profits fund, (ratheris set up, the options selected cannot Lifestyle annuities than fixed interest securities as happens be changed at a later date even if yourWhy your annuity will have to last you for longerThese take into account certain behavioural and environmental factors, as with a conventional annuity). circumstances change. For instance, if it is a joint life annuity and your partner well as medical factors to determine if you A with profits annuitant therefore benefits dies first, the annuity cannot be re-pricedAn annuity is an investment whichTailoring the incomepurchase, your estate would continue to have a reduced life expectancy. from any future profits, but will also shareto reflect the higher rates for a single lifewill pay you an income for the rest of to meet your personal receive an income for the next three years. in any of the losses in the with profit fund. annuity. But a flexible annuity gives youyour life, no matter how long you live.circumstances Any factor that may reduce life expectancyYou have to choose an Assumed Bonusincome flexibility, investment control andThis is achieved by handing over yourAnnuities have a number of importantAnnuity protectionmay be considered. These include smokingRate (ABR) of say three to 5 per cent. choice of death benefits.pension fund to an insurance company and valuable options that allow you toIt is also possible to buy a money (10 cigarettes, or the equivalent cigarsin return for an annuity when youtailor the income to meet your personal back or value protected annuity. or tobacco, a day for the last 10 years), As a rule of thumb, if the bonus actuallyretire. The insurer then guarantees to circumstances. The most important options If you die before reaching age 75,obesity/high cholesterol, hypertension/ paid by the insurance company exceeds For more information on the benefits ofpay you an income for the rest of your are as follows: and you have not received a certain high blood pressure and diabetes. the ABR, your income will rise. If it isshopping around before you purchase yourlife via the annuity.amount of annuity payments by thatless than your chosen ABR, your incomeannuity, we could help make the process Single or joint time, the balance will be paid as a Impaired life annuities will fall. This means that you have to be easier please contact us.Increasing longevity means that your A single life annuity pays a secure level oflump sum. This lump sum has the An impaired life annuity pays an even prepared to receive a fluctuating income,annuity will have to last you for possibly income, but stops when you die. If you arerather clumsy name of an annuity higher income for those who haveso they are only suitable for people who20 or even 30 years of retirement, makingmarried, it is possible to have a joint lifeprotection lump sum death benefitsignificantly lower life expectancy. Thecan afford to take this risk.decisions around inflation proofing your annuity. This means that annuity payments and is taxable at 35 per cent.insurer will require a medical report fromincome very important. will continue to your partner if you die first. your doctor (there is no need for you to At present the annuity protection optionhave a medical examination).Different types of annuity You can choose how much income your is only offered by a small number ofMedical conditions such as heart attacks,In the UK, there are basically two types partner will receive after you have died. annuity providers, mainly those which offer heart surgery or angina, life threateningof annuity:For example, a 50 per cent joint life enhanced annuity rates. cancers, major organ diseases, such as: annuity means that when you die, your liver or kidney and other life threateningn ension annuities (compulsoryPpartner will receive 50 per cent of yourEscalating annuityillnesses such as Parkinsons and strokespurchase)pension until he or she dies. But be awareA level annuity pays the highest income will be considered.n urchased life annuities (voluntaryPthat buying a guarantee will reduce the at the start and does not increase in thepurchase)income payment slightly.future, whereas an escalating annuity starts at a lower level, but increases eachAll annuities share the followingGuarantee periods year. The increases can be constant, forcharacteristics: You can purchase a five or 10 yearinstance, increasing by 3 per cent each guarantee to ensure that if you die soonyear, or the increases can be linked ton hey pay a level of guaranteed incomeTafter annuity purchase, your spouse willchanges in the retail price index, moren hey turn a lump sum into a stream ofTcontinue to receive your annuity income commonly known as index linking.future incomefor five or 10 years.n Lifetime annuities guarantee to pay anIt is only natural to want the highestincome for as long as you are alive, noBuying a guarantee will reduce the income income, but you should not forgetmatter how long you live payment slightly, but this is a valuablethe effects of inflation. An increasingn hen you die, payments stop, unlessWoption if you want peace of mind. annuity may start lower, but it will payyou have chosen a joint life annuity, aout more income in the future. Theguaranteed payment period or a value If you select a five year guarantee (whichcorrosive effect of inflation should notprotected (money back) annuity is the norm), and died two years afterbe underestimated.18A Guide to Retirement Planning A Guide to Retirement Planning 19 11. A GUIDE TO RETIREMENT PLANNINGA GUIDE TO RETIREMENT PLANNINGGetting theTracing a personal orbest annuity occupational pension scheme It can be easy to lose track of a pension if youHow to substantially increase your pension incomechange jobsthrough your working lifeThe annuity market is very competitiveBuying the wrong Benefits of If youve lost the details of a pension the then use this information to contact n hether the employer traded under aWand rates differ between annuity providers. type of annuityshopping around Pension Tracing Service may be able tothe pension provider and find out if you different nameYou can substantially increase your Currently, according to the ABI, moreThe new rules stop insurers fromhelp by providing your pension schemes have any pension entitlement.n he type of business the employer ranTpension income by purchasing your than half of all investors who buy anincluding an application form in theaddress. You can then contact then hether the employer changedWannuity from the company which pays the annuity which pays a fixed income forinformation pack sent to customersscheme and find your entitlement. Information to give to the address at any timemost income. This is called exercising the life simply buy the default annuity deal approaching retirement, making it lessPension Tracing Servicen hen you belonged to theWOpen Market Option.from their current pension provider. As alikely that people will simply buy theIt can be easy to lose pension schemeresult many end up buying the wrong type first annuity they see. These retirement track of a pension if you You need to give the Pension TracingInforming customers about of annuity or effectively locking into anpacks have been redesigned to placechange jobsthrough yourService whatinformation you can.Itbetter annuity optionsuncompetitive pension deal for the rest of greater emphasis on the benefits of working life. will help if you can tell the PensionIf youve lost theThousands of people could end up with their lives. shopping around. Crucially, where Tracing Service what type of pension details of a pension thebigger pensions as new rules will forceinsurers are selling an annuity toThe Pension Tracing Service (part of Thescheme you are searching for. They holdPension Tracing Service mayinsurers to inform customers about better Shopping around for the best annuity one of their existing customers, they Pension Service) will try and help youdetails of two types of pension scheme:annuity options. The Association of British deal could increase the size of awill be required to ask about their trace a pension even if youre not sure occupational pension schemes andbe able to help by providingInsurers (ABI) new code of conduct forcespension by over a third. A recentcircumstances and medical conditionsof the contact details. It has access topersonal pension schemes.your pension schemesinsurers to give more information about how report from the National Association before providing a quote. information on over 200,000 pensionaddress. You can then contactconsumers can shop around for a betterof Pension Funds claimed that this was schemes. The Pension Tracing ServiceOccupational the scheme and finddeal, while ensuring that those with health costing pensioners more than 1bn in will use this database, free of charge, topension schemeproblems receive a higher income as a result. lost retirement income.search for your scheme. This is a pension scheme an employeryour entitlement. offers to its employees. If you are The Pension Tracing Service may betrying to trace an occupational pension able to provide you with current contactscheme, start by working out: details for a pension scheme. You can20A Guide to Retirement Planning A Guide to Retirement Planning21 12. A GUIDE TO RETIREMENT PLANNING A GUIDE TO RETIREMENT PLANNINGin its early years, the pension benefits from Contracted out schemessignificant equity exposure.There are further requirements ifthe consolidation payment includesPensionThen, as you get closer to retirement, risk isacontracted out benefit (i.e. aGuaranteedgradually reduced to prevent stock market Minimum PensionorProtected Rights).fluctuations reducing the value of your pension.Before the consolidation can proceed, theMost old plans do not offer lifestyling so fund UK scheme must:volatility will continue right up to the pointyou retire. This can be a risky strategy andn btain written confirmation from theOinappropriate for those approaching retirement. member that they understand the risks inconsolidationconsolidating this type of benefit overseasConversely, more people are now optingbecause the overseas scheme may notfor pension income drawdown, rather thanprovide the same degree of security orconventional annuities. For such people, apriority to the contracted out benefitlifestyled policy may be inappropriate. n ake reasonable steps to satisfy themselvesTthat, where the overseas scheme is anOverseas consolidationoccupation pension scheme, the memberMost UK pension plan members are able tohas entered the relevant employmentBringing your pensions under one roof consolidate their benefits to other approvedn ake reasonable steps to satisfy themselvesTpension schemes.For those living overseas or that the member has received a statementMost people, during their career, n I dentify any underperforming These old-style pensions often impose those with overseas pension schemes, it may from the overseas scheme showing theaccumulate a number of different pensionand expensive investments with ahigher charges that eat into your money,also be possible to transfer their benefits tobenefits to be awarded in exchange for theplans. Keeping your pension savings inview to switching these to more so it may be advisable to consolidate any pension schemes outside of the UK.consolidation paymenta number of different plans may resultappropriate investments investments in these funds into a potentiallyin lost investment opportunities andn ccurately review your pensionA better performing and cheaper alternative.Qualifying Recognised Consolidating your pensionsIts important tounnecessary exposure to risk. provision in order to identify whetherOverseas Pensionwont apply to everyoneensure that youyou are on trackEconomic andScheme (QROPS)The potential benefits of consolidating your get the best out of theHowever not all consolidation of pensions market movementsThe procedure for overseas consolidationpensions wont apply to everyone, and therewill be in your best interests. You shouldWhy consolidate Its also worth taking a close look has been simplified significantly since April may be drawbacks to moving your pension contributions youvealways look carefully into the possible your pensions?at any investments you may have 2006.Now, as long as the overseas scheme isplans- particularly so for certain types of made, and keep track ofbenefits and drawbacks and if unsure seek Traditionally, personal pensions have in managed funds. Most unit-linkedrecognised byHM Revenue & Customs(HMRC) pension. It is therefore vitally important toyour pension portfolioprofessional advice.favoured with-profits funds low-pensions are invested in a single as an approved arrangement (known as acarefully consider all aspects of your existing to make sure it remains risk investment funds that pool the managed fund offered by the pension Qualifying Recognised Overseas Pensionpensions before making a decision as toKeeping track of your policyholders premiums. But many ofprovider and may not be quite asScheme (QROPS)), the consolidation can be whether or not to consolidate. appropriate to yourpension portfolio these are now heavily invested in bonds todiverse as their name often implies.processed just like a transfer to a UK scheme. personal circumstances.Its important to ensure that you get the even out the stock markets ups and downs These funds are mainly equity-based As well as whether the total size of yourConsolidating yourbest out of the contributions youve made,and, unfortunately, this can lead to dilutedand do not take economic and market A QROPS is a pension scheme set uppension funds make consolidation viable, existing pensionsand keep track of your pension portfolio to returns for investors.movements into account. outside the UK that:Issues to take into account include whethermake sure it remains appropriate to youryour existing pensions have: is one way ofpersonal circumstances. Consolidating yourIts vital that you review your existing pensions Lack of the latestn s regulated as a pension scheme in theIdoing this.existing pensions is one way of doing this. to assess whether they are still meeting your investment techniques country in which it was established n L oyalty bonuses needs some with-profits funds may not The lack of alternative or more innovativen t must be recognised for tax purposesI n E arly termination penaltiesPension consolidation involves moving,penalise all investors for withdrawal, so a cost- investment funds, especially within with- (i.e. benefits in payment must be subject n G uaranteed annuity rateswhere appropriate, a number of pensionfree exit could be possible.profits pensions and often also a lack of to taxation)n Integrated life cover or otherplans potentially from many different the latest investment techniques mean additional benefitspensions providers into one single Focusing on fundthat your pension fund and your resulting UK schemes, when they receive an applicationn inal salary pension benefitsFplan. It is sometimes referred to asperformance retirement income could be disadvantaged. to consolidate benefits overseas, must referpension switching.Many older plans from pension providers to the QROPS list. If the overseas scheme isMany people, during their career may that have been absorbed into otherSignificant included, the consolidation can proceed.accumulate a number of different pensionPension consolidation can be a very companies have pension funds which areequity exposure plans and maintaining these separate plans canvaluable exercise, as it can enable you to: no longer open to new investment, so- Lifestyling is a concept whereby investment If the overseas scheme is not included, itbe laborious and complicated, leading to lostcalled closed funds. As a result, focusingrisk within a pension is managed accordingcan apply to HMRC for QROPS approval. If investment opportunities, exposure to undue riskn ring all your pension investments intoB on fund performance may not be a priority to the length of time to retirement.approval is not granted, the consolidationand higher costs. To find out how we could helpone, easy-to-manage wrapper for the fund managers.Lifestyled pensions aim to ensure that, cannot proceed. you, please contact us for further information.22 A Guide to Retirement Planning A Guide to Retirement Planning 23 13. Content of the articles featured in A Guide to Retirement Planning is for your general information and useonly and is not intended to address your particular requirements. They should not be relied upon in theirentirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made toprovide accurate and timely information, there can be no guarantee that such information is accurate as ofthe date it is received or that it will continue to be accurate in the future. No individual or company shouldact upon such information without receiving appropriate professional advice after a thorough examination oftheir particular situation. We cannot accept responsibility for any loss as a result of acts or omissions takenin respect of any articles. The pension and tax rules are subject to change by the government. Tax reliefs andState benefits referred to are those currently applying. Their value depends on your individual circumstances.The performance of the investment funds will have an impact on the amount of income you receive. If theinvestments perform poorly, the level of income may not be sustainable.Produced by Goldmine Media Limited, Prudence Place, Luton, Bedfordshire, LU2 9PEArticles are copyright protected by Goldmine Media Limited 2012. Unauthorised duplication or distribution is strictly forbidden.