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 RETIREMENT PLANNING
It is essential to ensure that you put aside sufficient funds during your working life to allow for a comfortable retirement in the future. You could spend a third of your life as a retired person, so by taking action now, you can help to make this period as financially secure as possible.
Many options are open to retirees in regard to
how they use their savings. It is important to seek appropriate advice on the options available to you. Here we outline some of the key areas to take into consideration when planning for your ‘golden years’.
Initial considerations
Your retirement planning strategy will be determined by a number of factors, including your age and the number of years before retirement. However, there are some other key issues
to consider:
• Do you have an employer pension scheme?
• Are you self-employed?
• How much can you invest for your retirement?
• How much State Pension will you receive?
Individuals who reached State Pension age after
5 April 2016 receive a flat-rate pension, worth £185.15 per week where they have at least 35 years of national insurance contributions (NICs) or credits.
Those who reached State Pension age before
6 April 2016 will continue to claim their basic State
Pension (plus any additional state pension that they may be entitled to). The basic State Pension in 2022/23 is £141.85 a week.
To receive a State Pension forecast you can phone the Future Pension Centre on 0800 731 0175.
Employer pension schemes
There are two kinds of employer pension scheme into which you and your employer may make contributions. A defined contribution scheme pays
a retirement income reflecting the amount invested and the underlying investment fund performance.
A defined benefit scheme pays a retirement income related to your earnings: such schemes are very rare. However, in both cases, you will have access to tax- free cash as well as to the actual pension.
Pensions auto-enrolment
In order to encourage more people to save for
their retirement, the government has introduced compulsory workplace pensions for eligible workers. Under auto-enrolment, all employers
must automatically enrol all eligible workers into
a qualifying pension scheme. There is generally a minimum overall contribution rate of 8% of each employee’s qualifying earnings, of which at least
3% must come from the employer. The balance is made up of employees’ contributions and associated tax relief.
Personal pension schemes
Relying on the State Pension will not be adequate for a comfortable retirement, so if you are not in a good employer scheme, you are advised to make your own arrangements.
To qualify for income tax relief, investments in personal pensions are limited to the greater of £3,600 and the amount of your UK relevant earnings, but subject also to the annual allowance. The
annual allowance is £40,000, but this is tapered
for individuals who have both threshold income (broadly net income plus any reductions in salary for salary sacrifice or flexible remuneration schemes less gross personal pension contributions) over £200,000 and adjusted income (broadly their income and employer’s pension contributions plus employee contributions via a net pay arrangement) over £240,000. For every £2 of adjusted income over £240,000, an individual’s annual allowance will be reduced by £1, down to a minimum of £4,000.
Where pension savings in any of the last three years’ pension input periods (PIPs) were less than the annual allowance, the ‘unused relief ’ is brought forward, but you must have been a pension scheme member during a tax year to bring forward unused relief from that year. The unused relief for any particular year must be used within three years.
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