Making provisions for your pension is extremely important. Nobody knows what the future holds, so you should never rely on the state to provide for you in later life.
However, when navigating the various pension products available and coming up with a suitable retirement plan, it’s very important to have access to professional advice. As pensions legislation becomes increasingly complex, expert analysis is vital to ensure you are making the correct choices and are on the path to meeting your financial goals, especially as rules will inevitably change along the way.
The team of pensions specialists at Future Life Capital has an enviable track record in explaining even the most complicated concepts in simple terms. We give our clients the knowledge and understanding they need to make the right decisions, both now and in the future.
When should you start saving for your pension?
Pensions are not the be all and end all of retirement planning, but for many people are a big contributor. When executed well, they provide a secure future income that is invaluable in retirement.
Though you may already have other investments in place to make up for any shortfalls in your pension plan, we cannot stress enough just how important it is to start saving early, when time is on your side.
Future Life Capital carried out an analysis that showed those who start making pension contributions aged 25 can expect to accumulate around double the fund compared to someone who begins saving at 40 years old. These calculations were based on a term through to state retirement age at 68 years old.
How we work
It is important to ensure that you are committing to a regulated pension. Far too many in the past have lost their nest eggs through a non-regulated pension that offers them little or no protection. It’s our job to advise you within a regulated environment; doing so will add a far higher degree of dependability and security to your investment.
You may have existing plans that you are paying into, but can you confidently say they will be enough for the lifestyle you intend to lead in your later years? When assessing your retirement needs, we will first look at any gaps that need to be filled. Cash flow modelling can help to quantify these gaps and visualise your future – we’ll go into this in a little more detail later.
Once we establish your requirements, we can then look at the appropriateness of your existing pensions benefits and work with you to address any deficits.
Get help exploring the pension fund investments available to you
If you are lucky to have a final salary scheme pension, you are in the minority. Most people must take their chance with money purchase pensions that are exposed to market risk when building their private pension. There is therefore a big crossover between pensions and investments, so it is good to look at pensions as a tax-advantaged investment.
Over the years it is likely that you have worked in different places and collected a number of different pension arrangements. Consolidating these can be a good course of action to take, as you may be able to reduce the overall charges on these plans – but there’s often a powerful argument for synchronising a common investment strategy. Bringing plans together has to be well thought through, as some legacy type arrangements have valuable guarantees attached to them that would be lost on transfer. It’s not always the best path to follow.
Putting that to one side, and as noted, pensions are generally investments with a tax wrapper. Getting the best results is about maximising those investment returns within your risk tolerance. You may prefer a traditional insured pension, but your risk tolerance and your capacity for loss may mean that a self-invested personal pension is actually the preferred option, in which you can enjoy a wide architecture of investment opportunities.
InfoPlease note, past investment performance is not necessarily a guarantee of future returns.
Cash flow modelling
Over time, many of our clients have learned to rely on cash flow modelling to visualise what their financial future may look like. This is different to many advisers that, whilst encouraging their clients to save, are not always communicating the purpose of this otherwise directionless pensions advice.
Future Life Capital will start the process by asking you to share your current and potential income streams with us, as well as your current and future expenditures. We then import this into the cash flow model and look at many variations to answer those important questions (the most common one being: when can I afford to retire?)
The cash flow modelling itself can be carried out independently of our regulated advice functions, but more often than not we use this as a supporting tool for our advice. Watch the video below to learn more.
What is the annual allowance?
The annual allowance is a limit on the amount that can be saved into a pension each tax year with tax breaks, an amount of £40,000. Please note, however, that for some higher earners the annual allowance can be as low as £4,000.
Contributions larger than the annual allowance can potentially be made by using carry forward – ie, bringing unused allowances from the three previous tax years into the current year.
How your pension savings are measured against the annual allowance depends on the type of pension scheme you can have taken out.
- For defined contribution (DC) pensions, it is the total contributions from all sources paid during the tax year.
- For defined benefit (DB) pensions, it is the capitalised value of the increase in the accrued benefits over the tax year.
We are able to help you with your annual allowance calculations, identifying any potential carry forward opportunities so you’re able to fully utilise your pension contributions and save in a tax efficient manner whilst avoiding any unwanted annual allowance tax charges.
What is the lifetime allowance?
The lifetime allowance is the maximum value of benefits that can be taken from a registered pension scheme without them being subject to the lifetime allowance charge. The current lifetime allowance is £1,073,100.
In recent times, savers have enjoyed inflation increases – but it was announced in the March 2021 budget that the lifetime allowance will be frozen until April 2026.
Any savings above the lifetime allowance will be subject to a tax charge at a crystallisation event, most obviously when an individual takes benefits or dies. There is also a second lifetime allowance check at age 75, which tests any uncrystallised benefits or any growth in drawdown funds.
We can help manage the lifetime allowance and its implications by taking into account any protections that are available to you. From there, we can plan the most effective withdrawal strategy to limit any tax liability.
The current annual allowance charge is 55% if taken as a lump sum or 25% if you remain invested. The funds will be subject to income tax on withdrawal.
For more information on the various pensions available to you, or to get specialist retirement planning advice at any age, contact Future Life Capital today. We are based in Essex but can extend our pension advisory services to clients anywhere in the UK.
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