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Planning Retirement Online


Lifting the Lid off Retirement

 by Jeanne Davis

Jeanne Davis.jpg (7321 bytes)Jeanne Davis is the author of “How to Plan Your Successful Retirement” and has published numerous features on midlife and ageing issues in The Guardian, Woman’s Realm and other national publications. For many years, she was a director of AARP (The American Association of Retired Persons) a membership organisation with 33 million members that represents the interests of people 50 and over.    

                                                                                                                  

Part 3 - PLANNING YOUR RETIREMENT

Start Now to Boost Your Income

Fact:  One third of those aged 55-64 in the UK have made no provision about getting an extra pension above the one provided by the state.

When reviewing your finances, there are questions you should be asking. 

  • Are you or will you be receiving all the pensions and benefits you are entitled to?  

  • Could your savings be better invested?  Are you paying more tax than you should?  

  • What else can you do to boost your income?

DIFFERENT KINDS OF PENSIONS

 

There are three major types of pensions - a state retirement pension, an occupational pension, a personal pension. Most people will receive a state pension. Approximately 60% of workers are in line for an occupational pension.  The self-employed and employees who do not belong to a company scheme can set up a personal pension.

 

State Pension 

 

Check that you will be entitled to a full pension on retirement. Do you have enough qualifying years? If not, you may receive a reduced pension or none at all. Find out by completing form BR19 obtainable from your local Benefits Agency office. If there are gaps in your contribution record, ask about making late or voluntary payments. 

Credits may be given to people who cannot work regularly because they have to look after a sick or disabled person or children. You can also choose to defer drawing your pension for a period of five years in order to earn extra pension.

 

Occupational Pension

 

Salary-related schemes are rife with complicated calculations, so the amount you get will take some working out. Typically it will be a percentage of your final salary for each year worked. Money purchase schemes are based on contributions you and your employer have made to an investment fund. Check with the appropriate pension administrator in your organisation to determine final estimated payouts.

There are ways to increase your income. You can up your contributions in some cases to maximise the benefits. Whatever your age, do not think it is too late.

Investigate effects of inflation. Your scheme may not be index-linked.

You will need to decide whether to take a certain amount as a lump sum and get a lower pension or postpone payout. There are tax implications to consider and if you belong to a good index-linked scheme it may be better to take  a higher pension rather than the lump sum.  

If you have changed jobs in the past, check whether you have pensions preserved in former employers’ schemes. 

 

Personal Pensions

 

For the self-employed and employees who do not have access to a company pension, personal pensions remain the most common form of retirement savings vehicles. These are money purchase schemes in that your pension is based on a pension fund built up over the years. You get full tax relief on pension contributions provided they do not exceed the limits laid down by Inland Revenue.

Personal pensions are very flexible. The proportion of your income the Inland Revenue allows you to contribute increases as you get older. You can continue to contribute until you are 75 as long as you are still earning. It's not necessary to purchase an annuity from your original pension provider. You can shop around among different insurance companies and choose the one that suits you best.

There are various types of personal pensions on offer:  unit-linked policies, with profits policies, deposit based plans. Get professional advice from an accountant or an independent financial adviser to decide which will be the best money-earner for you.

 

HOW TO PAY AS LITTLE TAX AS POSSIBLE

 

Arranging your affairs so that you pay as little tax as possible is both legal and sensible.  

Find out what tax allowances you are entitled to. Everyone has a personal allowance but there are higher levels for people age 65 and over.  You may get other allowances that allow you to receive a certain amount of income without paying income tax, based on the level of your income. Check with the Inland Revenue on all available allowances. Help line 0845 3075555.

Don’t forget that you get full tax relief on contributions to personal pensions.  When choosing investments,  investigate those that are tax-free. While the returns are less in your working years, the tax savings in retirement are to your financial advantage.  Again talk to experts, such as an accountant, to explore all avenues of tax efficiency.

SAVINGS AND INVESTMENTS

Bank accounts and savings accounts

 

Almost all of us have bank accounts and savings accounts. But too few of us seek out the best offers or inquire about the returns on savings, the rates on loans, or the performance of investments. This inertia, a common failing, can cost you a considerable sum each year in interest foregone or overpaid.  

If your current account pays interest, for example, at the rate of 0.1%, shop around. Some Internet and even branch-based accounts now have rates of 4 to 5 %. Sadly, the high street banks practice of paying the lowest rate also extends to savings accounts.  The best rates are now online  -  there are e-savers that will pay as high as 7% on balances of 2,000 plus.

 

Tax-free savings

 

Currently you can invest up to 7,000 in an individual savings account (ISA), a scheme that offers tax-free interest and gains.

 

Investments

 

In choosing investments, unless you are a very sophisticated investor, you should get professional advice from an authorised financial advisor. The safest investments may not be the most profitable. Then again, the closer you get to retirement age, the less risk you will want to take .

Even if you are already 65 or over, there is still much you can do. Investment products vary considerably in both return and risk.  Some are designed to increase capital, others to provide you with income.  There are government stocks, stock exchange investments, unit trusts, life assurance policies. Look for those that are tax-free. 

When vetting financial advisors, keep in mind that some get commission on the products of the company to which they are tied. Others are independent. To find out what kind of business an adviser is authorised to do, call the Financial Services Authority (FSA) public inquiry number 0845 606 1234.

 

Insurance

 

Inertia is also a prime drainer of cash. Staying with the same company or accepting without question the rates, won't make your money work for you.   Shop around for a more competitively priced product that will still give you the cover you need. 

 

Mortgages

 

Find time to talk to your lender about switching your loan to a deal that will reduce your repayments. Savings can be invested to build up for healthy returns in retirement. Some experts suggest you open negotiations yourself with the lender, rather than wait for him to come to you. You can subtly suggest you will take your business elsewhere if he doesn’t come up with a worthwhile offer. 

 

Credit Cards

 

Credit card holders seem reluctant to question the rate they are paying. If you have a large credit card balance you could cut the repayments by transferring this debt to a card with a single-digit introductory rate. There are cards out there with  a standard single digit rate, much less than the usual two digit APRs.

 

FACT:  The majority of people drawing occupational pensions take part of their pension as a lump sum. About two-thirds of these invest some or all of the money

In the next column we’ll look at the pros and cons of selling your house to boost your income. 

BEST BOOKS

Good (non) Retirement Guide 2000 - Rosemary Brown, Enterprise Dynamics Ltd, 2000

Includes an excellent source for government offices, professional associations and organisations to help you

The Retirement Handbook, Caroline Hartnell, Age Concern, 2000

Briefer but worthwhile looking at.  

To view previous articles in this series - see the laterlife-interest index page


 

laterlife interest

The above article is part of the features section of laterlife.com called laterlife interest. laterlife interest contains a variety of articles of interest for visitors to laterlife.com written by a number of experienced and new journalists.

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