Pension tips
Start saving into your pension - sooner rather than later. It might seem obvious but the later you leave it, the smaller your pension pot will be. If you haven't started saving already, find out about your employer's pension scheme or talk to your usual financial adviser about personal/stakeholder pension schemes.
Don't underestimate how much you'll need when you retire.
Ideally, you want to build a pension pot that's big enough to let you live off the income it produces when you retire. Aim to save around £20 for every £1 a year of level pension you need or £30 if you want an index-linked pension.
Consider your options carefully when you retire. Annuities are only one way of taking an income from your pension fund and are most suited to people who need a guaranteed income and those who are risk averse. Alternatively, you could take an income directly from your pension fund, but this carries a risk that your fund could fall, forcing you to reduce the income you take. However, new options also allow you to continue to invest in more volatile assets that should produce a better return, such as equities, yet still protect your income for life.
Boost your pension pot. If you're worried that your personal or company pension fund is not big enough, you can top up your personal pension contributions using additional voluntary contributions (AVCs). A Free Standing AVC may meet your needs as well as an AVC. Your financial adviser will be able to advise which pension plan is better for you. We do not offer a Free Standing AVC product.
A regular financial check-up. It's a good idea to regularly evaluate your retirement pot, to make sure you're on the right track. You can do this yourself or talk to your usual financial adviser for a second opinion.
A. The replacement rate (or target retirement income) is a way for people to calculate whether or not they are saving enough for their future. For high earners (over £40,000), the Government suggests a target of half of pre-retirement income and for average earners (£25,000), the target is two-thirds of pre-retirement income. Of course, the reality of the replacement rate depends on your personal retirement needs.
A. The amount you'll receive from your State Pension depends on the number of years you've been working, and is based on the National Insurance contributions you've paid. If your employer offers a pension it makes good financial sense to join and supplement your State Pension - ask for an illustration of the likely benefits at retirement, in today's money terms if possible. Relying solely on the State Pension might mean that you probably won't enjoy the sort of retirement you want. In 2008/09, the full State Pension is £90.70 per week, but few of us receive this - the average basic State Pension was only £67.84 a week for those retiring in 2006/07. You may also get Pension Credit. This guarantees £124.05 a week if you're single or £189.35 if you have a partner. To find out more about your state entitlement, see the useful links.
A. In 2006, the Government simplified the rules for pension tax, throwing out many of the existing complicated ones, and introducing new rules with greater choice and more flexibility. You can now save in as many pension plans as you want; make payments up to the level of your earnings each year, and still receive tax relief. A new lifetime allowance of £1.65 million in 2008/09 (rising to £1.8 million by 2010) means you can save up to this level over your working life in a tax-efficient way.
A. The answer to this depends on the way the company pension scheme is set up. Many pension schemes provide a pension for the surviving spouse, civil partner or dependant of a member who dies before or after retirement. Normally this is less than the pension paid to the member with many schemes paying one-half of the pension the member would have received. Usually this pension will continue to be paid for the lifetime of the widow or widower, but in some cases the pension may stop if the widow or widower re-marries, enters into a civil partnership or cohabits. Check with the pension scheme to find out what their rules are.
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Eighty-four per cent of people with a personal pension are significantly happier in life compared with 68 per cent of those with no pension.
Source: Standard Life Savings and Investment Index, January 2007
For an average earner, retiring without a private pension is the equivalent of a 75 per cent pay cut on the day you retire
John Lawson
These answers are only suggestions that provide information and are not intended to be comprehensive or financial advice. Please obtain financial advice on your own personal circumstances before making any financial decisions.
All information provided is based on our understanding of UK legislation and HM Revenue & Customs tax relief and practice for UK residents at the date of publication and may be subject to change and dependent on your own financial circumstances.
