Pensions and retirement

Some people want to travel the world or take up a new hobby when they retire. Others see it as a perfect opportunity to volunteer with a charity or start their own business. Whatever you are planning for the future, we can help you to make the most of your pension and other investments to achieve the retirement you want.

Although the terms retirement planning and pensions are often used interchangeably, they are in fact different.

Pensions

Essentially, a pension is a type of savings plan you pay into during your working life and draw on when you retire. There are a number of different types of pension plans including:

• The state pension, provided by the government and funded by national insurance contributions
• Private pensions, which largely fall into three categories:

1. Defined contribution pension schemes (including stakeholder pension schemes and personal pensions), where the amount you will receive is based on how much you and/or your employer have paid into it, along with any investment growth
2. Self-invested Personal Pensions (SIPPs), which are a type of defined contribution scheme but with extra features, such as  income drawdown and wider investment options
3. Defined benefit pension schemes, which are workplace pensions. The amount you receive when you retire is based on different factors including length of service and your salary Defined benefit schemes are more commonly known as final salary pension schemes. It’s important to note that while a final salary scheme is a type of defined benefit pension scheme, there are a number of defined benefit schemes which are not final salary pension schemes, such as career average pension schemes or cash balance pension schemes.

Retirement planning

A pension is not the only way to fund your retirement income. Many people choose to pay for their retirement through a combination of:

• Cash savings
• Investments, including ISAs
• Property income
• Pensions and annuities
• An inheritance 

Effective retirement planning takes all of these possible income streams into account and considers them alongside your long-term life goals.

Please do bear in mind that all investments, including ISAs and pensions, carry risk. This means that you could get back less than you contribute and any income you’re taking can also fluctuate. 

At Evelyn Partners, we get to know you and find out about your individual financial situation and what you want out of your retirement. We look at what you have and where you want to go. Then, we work with you to create a tax-efficient retirement plan to pay for the retirement you have always wanted.

The pension protection fund (PPF) protects members of final salary or defined benefit schemes if the employer funding the pension becomes insolvent and there are insufficient funds to pay out promised benefits. The PPF is paid for by the schemes it protects.

For more details on the PPF and how it could protect your pension, visit their website.

Retirement planning usually starts with thinking about what you want your future to look like. Then, it is possible to calculate how much money you will need to achieve your goals. Using this, we can analyse your savings and outgoings to find out how long your money will last and whether you’re on track, or look at what you need to do to get there. We call this cashflow modelling.

How much should I pay into my pension?

There is no set amount that you should be paying into your pension. The pension annual allowance, the maximum amount you can pay into your pension each year without triggering a tax charge, is currently set at £60,000 or 100% of your relevant UK earnings (whichever amount is lower).

How much you should be contributing to a pension depends on a number of factors including your:

• Current income
• Affordability
• Age
• Proposed retirement age
• Employment status and eligibility to join a workplace pension scheme
• Required retirement income

The tax benefits of paying into a pension

When working out how much you need to contribute to your pension, it’s important to remember that pensions have fantastic tax benefits that provide a boost to any contributions you make. You will automatically receive tax relief if:

• Pension contributions are taken directly from your salary by your employer before income tax is deducted, or
• Basic pension tax relief of 20% is claimed back by your pension provider from the government. This is added into your pension and known as relief at source

If you are a higher rate taxpayer, you can claim back full tax relief via your self-assessment tax return, or through your employer’s payroll by contacting HMRC who will amend your tax code.

Also, if you are paying into a workplace pension, your employer may match your contributions up to a certain limit. It's worth checking the terms of the plan to see if any increase in your own payments will lead to additional benefits from your company.

Please note that the tax legislation noted here is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions.

We can help you work out how much you should be paying into your pension as part of your retirement planning. By taking all aspects of your life, finances and current pension into consideration, we can give you the confidence to make informed decisions about your pension contributions.

Calculate my pension

At Evelyn Partners, we can help you calculate your pension along with your retirement income as a whole. This will account for your:

• Age
• Level of pension contributions
• Current pension value
• Other savings and investments (including property) and their current value

Our calculations can help you to make realistic assumptions and informed decisions for your future.

Remember, all investments go down and up, and tax rates and relief depend on individual circumstances and are subject to change. This will affect what you get back.

While we can assist with your personal and workplace pensions, you can review your state pension forecast by visiting the Government website.

The current state pension age in the UK is 66, rising to 67 in 2028. By 2046, it is set to increase to 68.

You can access most other pensions from the age of 55 (rising to 57 in 2028). This is known as the normal minimum pension age (NMPA). There are certain schemes that can be accessed before the age of 55 so it’s important to check with your provider if you have a protected early pension age.

Many people choose to retire after the normal minimum pension age, and sometimes after they reach the state pension age. This can be for various reasons, including not wanting to give up work or because they cannot afford retirement yet.

There are, however, others who want to retire as soon as they can, but at the same time, do not want to run out of money in later life. With the help of cashflow modelling and our expertise, we can work out what age you can retire with a high degree of accuracy. Taking your individual circumstances into account, we can see if you are on track to achieve the retirement you want and how old you will be when you arrive at this point. With changes to pension legislation and the removal of the pension lifetime allowance charge, this could be earlier than you think.

Saving for retirement is often one of life’s most significant financial challenges. Our experts can give you advice in a number of areas to help with this, including:

• Using your pension annual allowance
• Making extra pension contributions using pension carry forward 
• Maximising employee benefit arrangements  
• Using other savings and investments, such as ISAs
• Ensuring your savings are held in high-quality investments
• Navigating the tapered annual allowance (if you’re a higher earner)

Retirement is no longer about simply saving into a pension and buying an annuity. After you reach age 55 (increasing to 57 in 2028), you can take a retirement income in a way that suits your requirements while making the most of your various tax allowances. This could include taking pension lump sums, buying an annuity, going into income drawdown, selling parts of your investment portfolio and taking income from ISAs, dividends and cash savings. We can show you how long your money should last and how much you can afford to spend each year.

If you will be relying on investments held in your pension or other accounts for an income in retirement, it is important that your money works hard for you. Our investment managers can make sure that it is, either by managing your investments for you or giving you advice on all your investment decisions.

They can also review your portfolio over time, ensuring it continues to reflect your needs and circumstances. This could be by reducing your level of investment risk as you get nearer to retirement or switching the focus of your portfolio to generating an income when you retire.