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Posts Tagged ‘pensions’

A keen topic of interest for those able to see retirement on the horizon is to do with the virtue of staying within the UK State pension program.

When the stock market was rising without stopping to blink, and fund managers couldn’t help but expect a plump return each year, those with a little foresight decided to contract out of their State Earnings Related Pension Scheme, and have it replaced by a sum of money provided by the government which was invested in superannuation funds. Ideally this was meant to provide an increased pension in return for the risk undertaken.

The amount of money that was earned by the State Scheme for each person became tested as well as your health insurance contributions. While these figures depended on the income earned by an individual, the actual amount received was also reliant on the average national earnings across the United Kingdom and also any legislative changes to the scheme which occurred from time to time. For instance the scheme was renamed in 2002 to be dubbed the S2P, at a time when people invariably chose to contract out of it due to the large returns the superannuation funds were experiencing.

Interest rates were high and so the cost of purchasing an annuity in order to provide a pension was low. It become such a problem that a lot of people had to seek IVA advice. The return on investment (ROI) of these investments became quite high at this point.

These things not only dictated the benefit derived from contracting out, but they are precisely what the State uses to determine what the pension rebate will be for a person who is forgoing the State scheme and contracting out. The key to whole thing was looking at money for its present value rather than that future value, which is what a lot of forecasters were doing at the time.

Even though an element of choice is forgone by the individual, the secure haven of the UK government has been a calming influence on many of our community who have been battered by the volatility in world financial markets of late.

The pension planning age change – Ignore it and you could be losing out!

What’s changing?
From 6 April 2010 the minimum age that pension benefits can be taken changes from 50 to 55.

For many of people this change could well have a significant impact on their retirement plans as they may not be able to accesstheir pension benefits when they want. And many of these don’t even realise this fact. Also, there is no transitional period, so this seemingly small change could have consequences for your retirement plans.

What does this mean for you and your family

If you are between the ages of 49 and 54 this could have a huge impact. If you don’t act before this date access to your pension’s benefits will be more restricted. 49-54 year olds need to act soon.

If you are younger than 49 years old need to consider reviewing their personal circumstances as they could still be affected.

Bet you didnt know you can switch your pensions much like you can switch your car insurance?

Now you’ve got your pension in place, you stick with the same one until you want to retire. Right?

Perhaps. But have you ever thought about switching your pension planning?

Sticking with the same pension product until you retire might not necessarily be the best option for everyone. If you have an old and outdated pension plan, you may benefit moving to a modern flexible pension, with lower charges, more choice in how you invest your savings and which can be monitored on the internet.

More people are happy to look around for the best deals and switch their credit cards and mortgages to save money, but when it comes to switching their pension to get the best deal, very few have. Are you one of these people?

Now you’ve got your pension in place, you keep the same one until you want to retire. Right?Okay, you may think it’s a bit of a hassle changing products, and it seems easier to leave things as they are. But you could be missing out if you choose to stay in your existing pension plan.

Also, if you have a number of different pensions, perhaps relating to employment with different companies, it can often be beneficial to consolidate these in a single plan. This makes it easier for you to put a value on your total pension savings and may also allow you to gain from lower charges and an overall investment strategy tailored to your needs.

Of course the decision to switch pensions requires careful consideration and it may not be in your best interest to move, therefore it is important that you receive financial advice from a professional before deciding to switch your pension.

Andrew Histon write lots of articles for the web on many subjects Pension Planning UK and other subjects. When not on the web here is in the garage playing with his classic mini or lambretta.

Upon retirement or reaching the statutory age limit, and individual is able to withdraw up to 25% of the proceeds from their Stakeholder Pension fund, however this will only detract from the income stream that could be potentially available into the future.

After a decision in regard to any lump sum withdrawal is reached, the balance of the fund needs to be invested in an annuity, which will be available under the prevailing interest rates of the applicable time.

This annuity may have various conditions itself, however as by definition an annuity is the purchasing of an income, it is mandatory for retirees since it secures an income stream for them. As opposed to a fund, where investment choices are bilateral as between retiree and provider, an annuity is a price paid for the guarantee of an income and the investment choices are outside of the individual’s preferences. Irrespective of the return made by the provider of the annuity, the retiree is entitled to receive their income. This, of course, is a carefully priced financial instrument, but offers security and peace of mind to the retiree.

The State Pension is currently only available after reaching the age of 65 years and it’s qualification depends upon whether the individual has accumulated sufficient qualifying years through their total earnings and National Insurance contributed. While some have the additional advantage of the State Second Pension, many have contracted out of this benefit in return for the alternative of choosing to invest in another fund.

In addition the Pension Credit scheme is a safety net for retirees who have not the fund proceeds to provide for their living expenses, but is subject to qualification of an individual’s circumstances. It is understandable that sometimes situations outwith our control occur and the consequences of these may affect qualification; this site may help to provide further information on how Individual Voluntary Arrangements, informal agreements and bankruptcy may affect your application for a State Pension.

These three choices provide for a retiree’s income, though will invariably be found to simply provide the most basic income to the retiree. Due to the enormous strain on the public purse, this is an incontrovertible fact. The State are simply unable to provide so many retirees with extensive incomes, since many other factors of public importance require significant funds also. Given that, by definition, these individuals comprising a considerable proportion of the population will be retired, public funds will require most judicious allocation.

For this reason, it is of utmost importance that people plan to supplement their government benefits. If they haven’t already a supplementary pension fund in place, a Stakeholder Pension fund is an ideal vehicle to offer ongoing financial security. As an additional income to that of the State benefits, this investment for the future offers the retiree security of a retirement income.

With the projections that are readily available from both fund managers and government, an individual needs to anticipate and take an active interest in the forecast earnings of funds. From this they are able to deduce the income they would most likely receive based on their current affairs.

It is vital to remember to include the incident of inflation in any long-term financial analysis. Though this is a very personal issue since attitudes to what constitutes needs and wants differ markedly between people, what essentially needs to established is whether there will be a need for the creation of a second, supplementary pension scheme to combat any expected shortfall in an individual’s future income.

As is standard, further savings will detract from an individual’s present income and, as such, along with other demands currently in place, the benefits to be gained in the long-term require assessment.

In line with the whole issue of providing more definitely for one’s future evolved from simply common sense into an absolute necessity, so too government policy and law has evolved. The result of this evolution and development has led to several individuals having pension funds from many employers that are displaced and spread over a number of providers. This lack of uniformity arose as the issues of an ageing population were explored, resolved and modified when they presented themselves.

Now an element of certainty has rested on the topic, and immediate consideration of its implications is needed by all.

When planning seriously for the future, it is well advised to locate old receipts, statements and any other information available from past employers in regard to the existence of unnoticed pension funds. These funds may not have accumulated to a great deal, but if consolidated into one fund they will prove to be a worthwhile source of income. By also locating these documents, it will enable you to manage your finances with more control, reducing the likelihood of IVA advice or IVA debt solutions.

Fees and charges are protected by law and as a result will be relatively low, however it is still important to factor these in when considering the capital growth of a fund. Aside from this, the tax incentives an individual receives simply through their participation in a Stakeholder Pension fund ought to be given express consideration. These tax incentives may lend themselves to being taken advantage of should the individual allocate a further amount to the fund which incorporates this advantage. This kind of conservative measure, while it may appear an almost trivial amount in the present, if maintained over time will also prove to be a valuable contribution as earnings are compounded and realized at retirement.

Recent turmoil and events in the financial system do nothing to make the prospect of estimating fund growth any easier. Still, if a reasonable expectation is available to be assumed in regard to fund growth, a residual amount that can be invested into the required annuity on retirement ought to be determined.

While the interest rate that will be applicable to an annuity in the future is uncertain and impossible to accurately calculate, the most accurate estimations are arrived at in an informed manner allowing the basis of a gross income to the retiree to be found. Unfortunately, taxation will always apply, even to the retiree, and this will need to be carefully considered when a disposable income is calculated.

With the additional benefits of the State Pension or other government income, a glimpse of future financial health ought to be reasonably determined. For further information on how the current health of your finances can affect your future, please click here.

Some people, of course, have not had the ability to save and, while the State Pension requires qualification by the individual making regular contributions throughout their working life, a person who has been unable to do so for whatever circumstance is still offered a basic pension through the Pension Credit policy. Understandably, it may be difficult to save for retirement for a variety of reasons, for example, financial issues, credit card debt or bankruptcy.

Therefore, opportunities have been made available for people to supplement the return their pension will offer them in retirement. If the amount they anticipate to receive is not seen as adequate, schemes are able to be established in order to supplement this income.

A Stakeholder Pension is a privately funded pension that is in addition to the State Pension or Pension Credit income. This pension fund allows contributions or lump sums to be deposited into it by the individual or their employer, and has the appropriate tax concessions attached.

These funds are strictly regulated by government control so as to protect the individual from arduous fees and charges that can detriment capital growth, but regulation also insists that these funds may not be accessed until the individual reaches at least 50 year of age. This is solely in acknowledgement of each individual’s responsibility toward their own future. By 2010, the minimum age of access will be extended to 55 years of age; this is expressly in consideration of the need to preserve pension fund proceeds.

Again, the actual investment decisions of the fund and the conditions on which the fund will operate are to be negotiated by the individual; however stringent requirements are imposed upon any provider of Stakeholder Pension funds, with employers of certain size having obligations to offer stakeholder pension schemes to their staff.

In moves to encourage people to participate in funding their own retirement, extensive taxation incentives are afforded to the potential Stakeholder Pension contributor.

Ordinarily, this means that all contributions are deemed to be tax free income, but indicative of the need for people to save for their future is the government undertaking that Her Majesty’s Revenue & Customs will match deposits made, by contributing 28% of an individual’s own contributions into their Stakeholder Pension fund.

If an employer employees five or more people, they are obligated to provide a stakeholder pension scheme for their employees. They are able to deduct contributions directly from an employee’s salary in order to deposit them into their fund. Additionally, the employer will be offered tax incentives to encourage the matching of contributions made by an employee, and these will also accumulate in the fund adding considerably to its capital growth. For further information on your finances both before and during retirement, this website may help.

Flexibility is intrinsic within this new regime, enabling people to transfer their stakeholder pension fund to their new employer when they change jobs; the minimum contribution that providers must accept is £20. People are able to contribute the amounts they wish, and also receive a mandate imposed by legislation that details a provider should not charge more than 1.5% in fees for the first ten years of the stakeholder pension scheme, reduced to 1% following this ten year period. Should the fund already be in existence and was established prior to 2006, the maximum fees chargeable will remain at 1%.

As would be expected, with respect to all investment funds, the investor needs to be abreast of their fund’s growth as it takes shape, and it is advisable to monitor statements distributed by the fund manager. Certainly, individuals are expected to negotiate the more practical terms of the fund with their provider, but a forecast of the expected growth of your fund is standard industry practice and useful to monitor the fund’s progress.

Unfortunately, even these incentive-based funds cannot guarantee returns for the investor, and since the decline in fund management performance from 2000 onwards, funds are capable of lack-luster periods of stagnant behaviour. Should this affect the health of your finances in a negative manner whether before or during retirement, this website may be able to offer help and advice.

While actively in control of their investment options, individuals contributing to a Stakeholder Pension fund have a practical safety net contrived specifically to assist the imminent retiree. This security is in the form of the requirement that within approximately 5 years of retirement age, the fund manager is obligated to place funds in less risky investments in order to preserve the growth that has accumulated thus far. This practice is also known as ‘life styling’, however can be expressly declined upon the instruction of the retiree.

Proceeds from the fund are unable to be accessed until the statutory age of 50 years is reached (to be increased to 55 years by 2010), however depending upon the provisions of the scheme, after reaching the age limit this freedom may be applied in different ways. When the age limit has been reached, subject to the rules of the scheme allowing, the individual may draw up to 25% of the proceeds as a lump sum should they wish, however are under no obligation to do so since in many cases this scheme will only be supplementary to other retirement income. For further financial information, please click here.

Industrial economies around the world are presently restructuring their projections and economic models in order to address the consequences of an ageing population; a large number of which is ageing in a transition period where science and medical advancement has enabled the average person to live longer. With men and women expected to live to the ages of 89 and early 90’s respectively by 2050, it is ancticipated that up to 47% of the population will exist in the form of retirees.

These contemporary issues have large implications on public spending as it is often the case today, that many of those that are part of the current retiring generation have not the savings to fund their retirement. This would ordinarily lead to an excessive burden being placed on public revenue, and if not offset in some manner would inevitably see the UK budget experience some detriment. This, in turn, would impact on the economy as a whole.

In response to this pressing issue, the UK government has been tasked with devising potential solutions that provide for the future of the UK economy, and as such there have been a selection of legislative amendments, introduction of new legislation and tax incentives, and a wide range of support services to provide information to those that are affected by these proposed changes.

Quite simply, the government has a responsibility toward pensioners of today and those of tomorrow, but that responsibility is to be shared by the individuals themselves, employers and also government. To have any other balance simply would not be sustainable, equitable or justifiable.

Pensions are, by no means, a new development: they have been accessible in a number of areas since 1908. Often employers will offer a pension scheme, and on occasion the employee is able to get certain contributions to the scheme matched by their employer. These contributions have routinely been treated by the tax office with favor and encouragement, by allowing tax free incentives to apply, and then qualification for a State Pension on retirement. The projected income that is derived from these schemes may not always be expected to be enough for the future pensioner to retire on, particularly since employers are tending to withdraw from these obligations as a result of the ageing population and as a result of 70% of the generation of the 1940s and 50s who are currently employed and close to retirement. Since by the age of retirement mortgages are normally settled, it is not possible to obtain remortgage advice in order to possibly release equity for retirement.

While it is both a personal choice of lifestyle and priorities, and future accumulated sums and returns are only able to be estimated at best, this remains one of the most principal issues significant to all UK citizens and therefore it is only right that it commands both introspection and consideration. For any further financial information, please click here.

Pension experts have revealed that the scheme set up to protect final salary pensions could be in trouble.

With the recent increase in pension shortfalls, the Pension Protection Fund (PPF) is in danger of being submerged from high volumes of claims being made as a result of the credit crunch.

According to the findings, up to 91% of final salary schemes can’t afford to pay out benefits, with the under-funded schemes carrying deficits of more than £228 billion.

The PPF takes around £700 million from companies every year, but this has proved too little and doesn’t cover its liabilities. The PPF has a deficit of around £550 million.

The PPF has already carried the weight of 62 schemes that failed, which include Woolworths, and Lehman Brothers.

There are now growing concerns that further failed schemes will result in the PPF to collapse, leaving future companies at risk of bankruptcy vulnerable to loss of employee pensions.

The government has been called on by The National Association of Pension Funds to back the scheme and act as a safety net, but the government has yet to comment.

NAPF Chief Executive, Joanne Segars, said: “In these exceptional times, maintaining confidence and security in pensions is vital so it would be a sensible measure for the Government to be the ultimate guarantor of the Pension Protection Fund.”

Vince Cable, Treasury spokesman for the Party, said: “I get a very strong sense that this is the Titanic hitting the iceberg. It is potentially very vulnerable in a serious recession, which is what we are now getting into. Companies won’t be able to sustain the fund in its present form. The Government has to be explicit that it is standing behind it.”

The possible issues were identified following a survey conducted by Punter Southall, revealing that 60 percent of pension schemes are oblivious of how their funding is being affected by the recession.

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