Ensuring a successful retirement
Many people spend time thinking about what retirement might look like financially, and this is particularly important now, especially given the current state of the markets, the economy and interest rates. Pension funds have been depleted by higher tax charges, reduced capital values, diminished rates of return and increased longevity. It is important to look at how much you need to save to secure your desired income and how your saving can be optimised for tax purposes. Time for a review?: The applicable laws and tax regime change over time, as do economic circumstances and market-based solutions. Retirement plans should be reviewed periodically to check their adequacy.
Taking into account the impact of the recent financial crisis , no one’s retirement planning looks the same as it did a few years ago.
Will the state pension suffice?
Even if it is not currently top of your agenda, being able to retire when and how you would like, is sooner or later likely to be one of your most important financial objectives. But achieving this goal takes planning and perseverance. You could spend a third of your life in retirement. Will you find those years the golden times we all dream of, or a constant struggle to pay the bills?
Your state pension is worth about £5,300 at current rates, assuming you have a full national insurance record. For those reaching state retirement age from 6 April 2010, this requires 30 years’ contributions. If you have not yet retired, we can help you check your record and see if any gaps can be filled. A review of your state pension entitlement will also indicate what you may expect to receive as state second pension, SERPS and graduated pension.
The state retirement age is also changing with the state retirement age for women rising in stages from 60 to 66 between 2010 and 2020. This will not affect women born on or before 5 April 1950, who can still claim their state pension at 60. Women born after 5 March 1954 will have a state pension age of 66.
The state retirement age for men is changing between 6 March 2019 and 6 March 2020. This will not affect men born before 6 December 1953 who can still claim their state pension at 65. Men born after 5 March 1954 will have a state pension age of 66.
In the 2011 Budget it was announced that the state pension age may be further increased after 2020 based on life expectancy.
In 2010, the new coalition government announced that the state pension will in future increase by the highest of price inflation, earnings inflation and 2.5%.
According to Government estimates, the gap between how much people are saving and how much they need to save to ensure a comfortable retirement is over £57 billion. It believes that 13 million people – nearly half the working population – are not saving enough for their retirement.
If you would like us to evaluate your retirement planning please contact us.
There has been a significant change in the rules relating to large donations to pension funds. The new rule imposes an annual contribution limit of £50,000 to a pension fund with effect from 6 April 2011. This is a massive reduction from the previous rate of £255,000.
In occupational schemes, the limit applies to both the employer’s and employee’s contributions. For final salary or defined benefit schemes, the contribution limit applies to the increase in the value of the member’s pension entitlement value during the year. In such an employment, a significant pay rise can result in a significant increase in such entitlement value which could be caught by these new provisions.
If you make a contribution above £50,000 or otherwise have your pension entitlement value increase by this amount, it may be possible to claim further relief under a transitional provision or by using an unused deemed allowance from one of the three previous years.
If you do make a pension contribution above the limit,…