32 pensions
The real value of a pension
With increasing life expectancy and decreasing state provision, now is the time to think about pension planning, says Tamsin Hazell, financial adviser at Beaufort Asset Management
The state
pension age is set to steadily increase and, by 2046, it’s planned to reach age 68
A pension plan doesn’t have to form your whole retirement strategy, but it can certainly play an important part
The good news is that, collectively, we’re all living longer. The bad news is that the Government can’t continue to keep us in our old age in the manner to which we’ve become accustomed. The state pension age is set to steadily increase and, by 2046, it’s planned to reach age 68. Sceptics would say that someone aged under 30 today will be lucky if they get a state pension at all (but that wouldn’t be popular with the electorate – better to let us down gently). Perhaps in the future, the notion of retirement – years of work free life filled with leisure time – will seem like a quaint one. A post-war dream that sort of fizzled out. Perhaps.
The simple message from the Government is that we can no longer rely on the state, and so the savvy amongst us will ensure that sufficient personal provision is in place. But the Government obviously isn’t convinced that we’re all going to be so sensible. Cue auto-enrolment: the process by which all employees are gradually being automatically enrolled into a workplace pension. By 2018, all eligible employees will have been enrolled, unless of course they’ve opted out. The hope is that the force of inertia will mean most of us stay opted in. The minimum contribution amount is currently 2% (1% from the employee and 1% from the employer) of earnings between £5,668 and £41,450 per year. The minimum contribution limit is gradually being increased to 8% by 2018 (5% from the employee and 3% from the employer).
So how much should one contribute into a pension to achieve a half decent standard of living in retirement? This depends on a number of factors, including current age, the value of existing pensions and investments, target retirement income, target retirement age and chosen investment strategy. As a rule of thumb, contributing at least 8% of salary is a good idea – and more if it’s affordable.
Of course, a pension is really just a savings plan. You may choose to save for your retirement through alternative arrangements, such as an ISA or holding investment property. However unlike other savings and investment strategies, within a pension your money is locked away until age 55, so you’re not tempted to spend it on something beforehand. To make up for this lack of flexibility, and to incentivise us to contribute, the Government offers tax relief on contributions at an individual’s highest marginal rate. For a basic rate taxpayer, this means that a contribution of £100 actually turns into £125 once tax relief is credited. For a higher rate taxpayer, the contribution turns into £166.67.
In fact, in terms of underlying investment options, a pension can be incredibly flexible, allowing for the direct investment in commercial property and
www.businessmag.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – DECEMBER13/JANUARY14
company shares. A self-invested style pension plan can be invaluable for business owners, with pension contributions being a qualifying expense to off-set against profits, potentially saving on corporation tax (subject to business ‘wholly and exclusively’ rules).
Employees can also make further use of the pension rules and contribute via a method called salary sacrifice, enabling both personal and company national insurance contributions to be saved and paid into a pension.
A pension plan doesn’t have to form your whole retirement strategy, but it can certainly play an important part. Whatever your age, ensuring that you have a robust financial retirement plan in place now is a good idea. Knowing that your financial future looks ok will bring immeasurable peace of mind; that’s the real value of financial planning.
Beaufort Asset Management is running a series of ‘Workplace Pension’ seminars across the region which are ideal for business MDs, finance directors and HR directors to attend. These seminars will give you a background of the government legislation as well go over the steps you need to take to ensure your business complies. To join the mailing list contact our marketing manager, Hannah Mills on 0118-9879400 or email hmills@
beaufortasset.com.
If you would like to discuss your retirement plan, please feel free to contact a Beaufort Asset Management adviser.
Details: Tamsin Hazell 0118-9879400
thazell@beaufortasset.com www.beaufortasset.com
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