Ellis Bates Financial Advisers
Planning for your retirement is one of the most important financial decisions you will make and no matter what your age or how far away from retirement you are, putting savings plans in place as early as possible is vital. There are several savings options for you to consider.
A defined contribution (DC) pension is a type of pension where the amount you get when you retire depends on how much you put in and how much this money grows. Your pension pot is built up from your contributions and your employer’s contributions (if applicable) plus investment returns and tax relief.
This is a pension scheme set up by yourself and contributions are made by you and potentially your employer and sometimes referred to as a private pension too.
A defined benefit (DB) pension scheme is one where the amount you are paid is based on how many years you have been a member of the employer’s scheme and the salary you have earned when you leave or retire. A DB pension pays out a secure income for life which increases each year in line with inflation. You may have one if you worked for a large employer or in the Public Sector.
| • You receive tax relief on your contributions at 20% - so if you contribute £1000 into your pension the Government will add an extra £250. | • Higher and additional rate tax payers (40% and 45%) can also receive basic rate tax relief and can claim back an additional 20% or 25% back via their tax return |
| • Ability to carry forward and contribute up to 3 years unused allowance | • Your employer can make contributions |
| • Contributions are flexible - you can increase, decrease, stop payments or add lump sums | • Investment choice and growth potential from the compound effect |
| • Usually access is age 55 (57 from 2028) so a disciplined saving option | • Pension savings normally sit outside of your estate for Inheritance Tax (IHT) purposes |
| • Ability to nominate a beneficiary to receive your pension savings in the event of your death | • Any retirement savings you haven't accessed at State Retirement Age are not taken into account when assessed for means-tested state benefits |
| • Making pension contributions can help manage your liability to certain tax charges such as child tax credit and a reduction in personal allowance | • Paying contributions into your children or grandchildren’s pensions is an extremely tax efficient way to help them financially and also locks the money away until they are able to access it |
| • Paying into a pension fund for a child/grandchild who is a higher rate tax payer can enable them to claim back tax relief on your contributions, as well as benefit from the tax relief itself | • If you die before your 75th birthday, the pension funds can be paid to your beneficiaries tax free |
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| • The value of your investment can go down as well as up depending on market circumstances | • Typically no access until age 55 |
| • Any withdrawals after your 25% tax-free entitlement are subject to income tax | • Liable to legislative changes |
| • Cannot be in joint names | • Tax relief on contributions limited to the Annual Allowance which is currently £40,000 pa or 100% of your salary. |
A SIPP is a flexible and tax-efficient pension designed to be managed by yourself if you have sufficient investment knowledge or with the help of a trusted Financial Advisor . As with all pensions a SIPP is designed to help you reach your pension pot and retirement goals.
This is a type of fund which offers a professionally managed portfolio of pooled investor funds that invests in different equities, bonds, and other securities. OEICs help avoid the volatility and risk of investing in a single asset class – while still looking to achieve returns that can potentially outstrip inflation.
An investment bond is a single-premium investment with an element of life insurance and allow you to invest in a diverse portfolio of funds that are expertly managed on your behalf. Bonds are typically designed for longer (min 5 years) term capital growth. Bonds can be held either offshore or onshore and its important to understand the tax implications of both.
A deposit account is a secure home for your every day and emergency cash and forms part of any financial plan.
| Advantages | Disadvantages |
| • Capital is secure up to the Financial Services Compensation Scheme limits | • Low interest rates deliver low returns |
| • Easy access to your money | • Inflation eats away at the buying power of your money |
Many will plan to use their property as part of their retirement planning, typically through downsizing and equity release or owning Buy to let properties.
ISAs are a type of savings plans and you can pay in lump sums and/or regular contributions and are tax-efficient when you take the money out with investment growth on cash being tax-free.
You can invest money in a Stocks & Shares ISA and/or a Cash ISA.
You’re able to open a Lifetime ISA if you’re aged between 18 and 39. You can use a Lifetime ISA to buy your first home or save for later life. You can put in up to £4,000 each year until you’re 50. The Government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
The State Pension is a vital source of income for millions of retired people across Britain. However, the system can be complex and it’s important that you know how it works. If you’re looking to maximise your income in retirement, a good place to start is with your State Pension.
To receive the basic State Pension you must have paid or been credited with a minimum of 10 years National Insurance contributions. With 35 years National Insurance contributions you will receive the full state pension. You can ‘top up’ national insurance contributions.
The full new state pension is currently £185.15 per week.
You can check your entitlement at www.gov.uk/check-state-pension
Seeking help and advice from an expert, qualified Financial Adviser will help ensure your retirement plans are well thought out, robust and achievable.
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