Retirement Planning
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Retirement Planning
Planning for retirement with Gary O’Neill.
What is the current retirement age and what age can you take your pension?
The current state retirement age for men and women is between 66 and 67, which is when you will receive your state pension if you’re eligible. It is dependent on your current age.
However, you can take benefits from a personal pension, a SIPP, or some company schemes from the age of 55. This is likely to change in future to 57.
Why do I need to plan for retirement?
I think everyone needs to plan for retirement, because clearly none of us really know what the benefits might well be from the government when we eventually retire. As I’m sure you’re aware, the state retirement age has gradually increased from 65 for men to age 67, but actually more worryingly for women from age 60 to age 67.
It’s quite a long time to wait, and in all probability, that retirement age might even climb to somewhere near 70. It’s really important that people start to plan for their retirement at the earliest possible opportunity, because if they want to retire earlier than the state retirement age (from 55), they need to ensure that they’ve got sufficient income from other sources, including pensions.
How do I plan for retirement? What is the process and the key steps?
First of all, if you work for a company, all employers now have to provide a pension scheme for their employees, whether they’re a relatively small company with maybe just one or two employees to large corporations or government organisations.
The government introduced auto-enrolment, which is a statutory requirement for employers to provide a pension scheme, and that’s a really good starting point. But in all probability, the benefits from those types of schemes are not going to be sufficient enough to provide you with an adequate retirement income.
We always encourage people to seek independent financial advice as early as possible, to have a really in-depth conversation with an advisor to look at how you can adequately plan to retire at your chosen retirement age, if indeed that’s before the state retirement age.
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Have you got any tips on how to boost your pension pot or my pension pot?
If you’re in a company pension scheme, you can make additional contributions – either with that scheme or independently through your own pension plan. The benefit is that you end up ultimately with a bigger pot of money and hopefully a bigger income in retirement.
The other real advantage is that the government gives quite good incentives for people to make pension contributions. If you’re a basic rate taxpayer, paying tax at the rate of 20%, for every pound you put into a pension scheme, the government adds another 25 pence.
If you’re a higher rate taxpayer, you can claim back 40% tax relief against your contributions. It’s not only quite a good pension planning tool, but it’s also quite a good way to reduce your income tax liability.
A lot of people are under the misconception that if you’re not working or you’re, for example, an unpaid carer, you can’t make pension contributions. But the government has actually allowed people to make pension contributions of up to £3,600 a year if you’re a non-earner.
If you make those pension contributions, the government will give you tax relief on the contribution, which means that if you make that pension contribution of £3,600 either yearly or £300 a month, it will only actually cost £2,880 because the government tops up the difference.
There are certainly good options out there to help to enhance retirement income. To get the correct advice for you as an individual, we suggest you seek independent financial advice.
How can a financial advisor help if somebody is looking to start planning for retirement?
First of all, the earlier people seek advice, the better. If you start early, you’ve got a longer period of time to plan and to contribute, which ultimately will give you a bigger retirement fund.
At your initial meeting with an independent financial advisor, you have a conversation about what your target income is, what your target retirement age is, and then gain advice to help you to achieve those goals.
When clients come to us, we don’t make any initial charge for that meeting. So people shouldn’t feel like they’re obligated to follow on with any of the advice, but it’s a good health check in terms of pension planning, where you are at the moment, where you want to be in the future, and obviously how to achieve that goal.
What else should we consider with pension planning?
As people go through their working lives, probably with different employers, they end up with a number of different pension schemes. Sometimes the information gets lost.
We offer a pension tracing service where if you’ve got relatively little information about the pension, we can effectively trace it. First, we use the government pension tracing service, which is quite helpful, but we can also provide a more personalised service.
In the past we’ve had people with pensions that they’ve actually forgotten about, that have actually been worth quite significant amounts of money. Only last week, a client realised they had over £25,000 in a pension they’d last contributed to in 1989.
So if you’ve got a pension that perhaps you’ve forgotten about, or you know you had a fund with a former employer, it’s a good opportunity to give your current pension plan a kickstart by tracing previous money and making it work harder for you. Hopefully it will get your long term or medium term pension planning goals a bit more in reach.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.