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Y o u r M o n e y Your



The average is 7,300 days P

ensions have held a fascination for me since the day I asked my

father if he was enjoying his retirement. His reply was that retirement was okay if you could afford it, and he could not.

Al Voice of Forces Financial gives us something to think about.

When do you spend the most? If you are like me I suspect it is at the weekends, or when you are not working. What my father was saying was that having seven days in every week in which to spend money and occupy himself was an expensive business. Since then for my own benefit (it’s getting nearer), and also because I am involved in the provision of Financial Services as well as being an employer, I have placed Pensions at the top of my list of priorities.

Pensions are no different from any other type of long-term savings plan, and therefore in order to save enough to live on when you retire you need to determine the level of income you will need to avoid my father’s concerns, and then take action. So once you have set your target retirement income I believe these steps should help you plan a comfortable old age.

Determine what your current Pension provisions will provide at your retirement age. All members of company and private pension schemes can request a projection of their final pension entitlements from their scheme administrators. Indeed most pension scheme administrators provide members with an annual statement illustrating current values and forecasts.

32 Spring 2008

Calculate the gap between your target Pension income and current provisions. Subtract one from the other – have a stiff drink – then be realistic. Consider your options for bridging the gap.

There are many alternative strategies for building sufficient funds for your retirement. The advantages of pension schemes – be they company or personal – is the tax treatment they receive. The 22% tax relief applied for on your behalf by the Pension provider means that a basic rate taxpayer contributing £78 a month into their Scheme will have it made up to £100 by the Government.

You can save as much as you like into any number and type of registered pensions schemes and get tax relief on contributions of up to 100% of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year toward a pension is subject to an ‘annual allowance’. For the tax year 2007-08 the annual allowance is £225,000.

In addition the schemes themselves do not pay tax on capital gains or investment income, and when your pension matures you take up to 25% of it as a tax-free lump sum, provided your pension scheme rules allow it and your total savings are within the ‘lifetime allowance’ for the year in which you take your benefit. For the tax year 2007- 08 this is £1.6 million.

Final salary schemes, which guarantee a pension that is a percentage of the employee’s final salary based on the number of years they have worked for the organisation, such as the Armed and Reserve Forces Pension Schemes,

are rapidly becoming a thing of the past because they are no longer affordable in the commercial world. So you have a head start!

But military careers do not normally take you up to age 65 or 70, and so it is likely that other pension schemes will be required as you change employment or career. Increasingly people are also using property investments to build their old age provision, and one should not loose sight of tax efficient alternative saving schemes like ISAs.

Determine your course of action Talk to a qualified independent financial adviser when you need to make additional provisions, but remember, don’t be talked into anything that you do not feel comfortable with.

Implement the plan

Get on and do what you say you are going to do – that extra drink or meal will only ruin your health anyway. Trust me, old age becomes a reality all too quickly.

Review your plan every two to three years

Although it may have been a robust plan, if it is no longer appropriate because of change in your circumstances, poor performance of an investment, or changes to government legislation do not bury your head in the sand. Make the necessary changes to keep on track for your target income.

It would be impossible to cover the subject of Pensions in full here; rather I hope I have provoked you into finding out more about your current situation so you can take control of your future. The web is a tremendous resource, and time spent with an independent financial advisor, in my experience, will be rewarded tenfold.

Look forward to a happy retirement!

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