It is very often the case that we don’t entirely understand the purpose of our existence until our mid twenties or thirties once the brain has fully developed.
Asking ourselves the question as to why school wasn’t more involved in the idea of work vs earnings as a future from an early age. Then instead of being the office clear we may have been a Engineer or Chairman of a Fortune 100 company.
The important message here is when you do realise your part in the cycle of life, make the right steps to correct the situation. The way you spend your money today has a direct hit on the money you could have once you stop working.
Which is why it is worth taking note of your expenditure and pondering how much of a return you could make on a monthly contribution to a pension plan? In an ever changing world, while the rules of death and taxes haven’t necessarily changed, the rules on how to invest in pension schemes and retirement age have.
Old rules to new rules, what’s it all about? Old rules still apply to those men born before 6th April 1951 / and women 6th April 1953:
- While a pension is a right, you still need to apply for it.
- You need to have paid in for 30 years worth of NICs and be at least statutory retirement age before claiming the full pension or paid in for 44 years and 39 years in born before 1945 (men) and 1950 (women)
- If haven’t managed to qualify for basic state pension yet, you may top it up taking into spousal contributions
New rules apply to men and women born after the dates listed above – respectively.
- You need to have paid at least ten years worth of NICs to receive basic state pension
- The amount of full state pension received is based on amount and years of contributions
- The government pensions website can aid in how these calculations will be made, from which you can also obtain a State Pension Statement to aid in finding out how much you should be due.
- Remember, you do not receive your state pension automatically and you can apply four months in advance of retirement
Is there any benefit in retaining an annuity versus full withdrawal?
Would An Annuity Be Beneficial To Me?
What is an annuity? In laymen terms it’s a financial product based on insurance.
The assurance is providing you an eternal monthly payout against what remains of your pension pot. It is by no means the smallest slice. The percentage used to be 75% with varying rules and regulations on how an amount could be further dissected.
Essentially it was a way of ensuring that you didn’t go out and place it all on Red 5 the day you received your pension. Annuity Rules have changed though. While you can still opt in to receive a guaranteed monthly sum for life, you could also opt to withdraw the entirety of your savings – paying income tax on the 75%, or take a large percentage and leave the remainder for the annuity.
There are benefits in every choice, as well as a downside. Take it all and you have to be very responsible.However if you take out at annuity plan and you live for fifty more years, it’s odds on that, well nearly, that the pension annuity provider will lose money on you. I doubt it but it’s a possibility.
On the other side of the coin of course, should you fall ill or die earlier due to illness or ongoing condition, the bank wins. If the condition is known at the time of investment you maybe entitled to an enhanced rate monthly, meaning you get more than you would have per month if you wasn’t ill.
Read our guide to pension annuities here.
Work Place Pensions, Explained
I have not been very lucky in being a party to a work place pension. I would hope they are more common place today and that you take a good deal more interest in them that I ever have. They come in various guises but each work to government guidelines.
These are important and government accepted means of investment to secure an healthy pension pot. They are termed as occupational pensions, company or works pensions and is complimentary to your state pension and does not by any means replace it. These company pensions schemes have vastly grown in minimum terms.
Your contributions must be equal to at least 4% of annual salary, with your employer opting in by at least 3%, the government will add in a top of minimum 1% to cover income tax relief purposes. The minimums used to be a lot smaller, personal contribution being 0.8% but as you are well aware, pensions have been falling short for quite some time.
All contributions are deducted from your monthly salary automatically by your employer and each year you will receive an annual statement detailing your current pension pot contribution total. This includes payments made by you, employer and the government. At any time you can request as estimation of the projected worth of your pension either in full withdrawal terms or monthly payout.
Let’s discover your pension pot options, make a considered decision on SIPPs
The names of publicly accessible pension schemes change from time to time, the one offered right now is the Self-Invested Personal Pension or SIPPs for short. Unlike an ISA which is another investment product, it is age bound.
You can’t receive the resulting funds of your investment portfolio until you reach the age of 55. This not only allows an investment group to maximise earnings for them and you through planning over many years, but it means they and you can’t get their hands on the built up residual pot.
A SIPP is very manageable, it can be ported to another provide if you find the current investment group wanting. You receive updates on performance and the investments carried forward so you can compare how it performs against other SIPP providers.
You run it like a mortgage with regular payments over many years, a minimum to a maximum. There may also be the opportunity to deposit a large amount, either a one off per year or over its life.
How does a SIPP actually work?
A management company takes a fee for ‘managing’ your investment.It is in their best interest to grow a fund upwards and get good results.
It’s how funds grow from hundreds of thousands to hundreds of billions, on reputation. They invest in financial products such as insurance bonds, investment trusts, stocks and shares (listed / unlisted), unit trusts and worldwide property.
At some point, distant or near, your SIPP will come of age when you do. The amount you can draw down on depends on much the above funds made in its lifetime. The great aspect is you stay in the scheme if you consider not enough, or take it and reinvest in elsewhere.
While it is called a Self-Invested Personal Pension, your employer may choose to invest too, matching your contributions – call it a perk of the job.Unlike the state pension you gain access to a SIPP at age 55 – currently, it may increase with statutory pension age and retain the ten year difference. There’s lot of information about SIPPs online.
Pre-retirement: Is There A Point To Planning For Pre-Retirement?
As a 40 year old, I cannot quite comprehend that I’d be dying in an average way on median terms with the Grim Reaper within a few years. Thankfully that’s a stat from 120 years ago and not the twenty hundreds.
In fact, barring ill heath or an accident (touch wood) I may well live to be between 80 and 100 years of age. Nan and Granddad lasted until 90 years old before succumbing to a cancer and even that’s a disease likely to have a cure within that time period.As you can see, planning for pre-retirement is not such a foolish thing.
Certainly not as much as would be the case if the year was 1902. Age 40 and planing for retirement, you’re joking… in fact it is recommended you begin retirement planning in your twenties. Whatever your current age, we have narrowed down on a couple of stages that lead to retirement and how knowing rather than presuming will leave you financially better off and more prepared.
Will I Be Able To Afford to Retire?
- Life Expectancy: Outside of taking a DNA test to find out how many more years you have on the planet, no-one really knows, especially you. You could live to be 125, or 99 or I am sorry to say, earlier.
- Lifestyle: If you stay at home all day with the lights off, your pension will not doubt last a very long time. But what’s the point in that? Slaved away for years, now you want to do more, see more and be more. Will the money fund the lifestyle you dream of?
- Expenses: Lights still off? You no longer form out to travel to work daily, less eating out, no more work clothes but the holidays, the sun cream, the presents for children, as well the usual bills. is there enough in the pot still?
- Income: My Uncle can’t afford to retire, Police Detective all his civilian life, in the army, but may have to downsize his home and remain in work part time. It’s certainly a way to top up the meagre state pension.
- Pensions – plural: You may not be able to retire, certainly not before finding out how well all those different pension plans are performing. If you have private pension and employer’s pension, add that to state.
- Payments: We are pretty much warned that the elderly are raiding their pensions too much too soon, but that’s the new freedom of choice we will all have. To take our pension as we see fit, but will the payments last as long as you live?
Planning for Different Retirement Lifestyles
If you are self employed you have probably already tasted the luxuries of retirement already. Needing to only work four to six months in a year or taking three months off.
For most people however, they’ve been restricted to holiday periods and fake sick days to get through it all. Now retirement is finally upon you it’s important to understand the differing lifestyles in retirement and the stages.
It’s Starts Off With Being Active
- You don’t need to get up at 7am tomorrow but you probably will anyway, because for one you’re used to it and secondly, what a wonderful new world it is. No work, can do and go wherever you want.
- You’re quite healthy for your age and that’s key to remember going forward to the next few stages. Enjoying active retirement offers many new avenues. Taking on new sports, forget the hip go hand gliding. Volunteer to work for a charity, the shop down the high street? No, you want to build an house in Africa. Or writing a book while on Safari.
- Will you see your new found pension as a lottery win for holidays or a windfall to be used as seed money to start a business. Why not? If you can be successful, you won’t need the pension.But you need to understand that you will need the pension if the venture fails.
- The last sentence matters whether you are climbing, holidaying or setting up in business. that pension pot is it, that’s your money for thirty or more years. You could even invest but watch out for tax issues, you don’t escape that easily.
And Then You Start To Feel Your Age
- Oh boy, what a ride the last 15 years were. But there’s still 15 years and possibly more to go. Did you do everything new too quickly, or did you do it just in time?
- Your back aches, you’re happy to spend more time in the home and getting out just a few times a week, and the family usually pays a visit a few times a month. On the other hand a 90 year old woman ran a marathon last week.
- Money… is it “oops” or “didn’t I do well?” Making that pension pot last is not as easy as it seems. The cruise down the Nile, the Virgin space flight, it all adds up. Do you now have less money to go around doing you favourite activities? My Granddad’s answer was the 1.53 at Wimbledon.
- Then there’s that thing you never really noticed before, which is why it is important to put some of your pension into an investment. INFLATION. There’s a reason £5 fifty years ago is worth ten times as much today and why your same £5 is worth the same some 15 years into retirement. Everything goes up, your pension does not unless you make a plan for it.
Who Cares About Retirement?
- You do, you’re heading for care. What is nominally called supported retirement, some people don’t quite get so lucky in being self aware and able at a certain age. They need help. Will you?
- We get old, I call it a disease other think it natural but this is the life cycle and now those bones are creaking, we get tired and need naps and well it may be time to consider a nursing home.
- What, I’ve got to pay for it? It certainly looks like we’re moving in that direction. Where the elderly will need to pay for their own care by selling their home. You could have stayed at home if hadn’t gone to Florida 53 times.
- Now you didn’t think you’d live until you was 105, you’d only planned for 93. again with declining health, loss of abilities, it’s so very important to understand how far your pension will stretch and which investments would have aided you better in the longer term. But 105, congrats!
Save For Retirement, You’re Having A Laugh!
As suggested elsewhere, I first saw a financial advisor when I was 16 and out working, I didn’t take him up on the retirement plan as I’d just been born.
It wasn’t very wise though. Imagine if I had secured a future pension pot as early as 16 years of age? That would have been fifty / sixty years of investing. I’d be Donald Trump without the hair style or attitude.
Starting Out In WorkYou’re aged 16 to twenty, maybe 24 if you stayed in education, it’s time to let your employer give you all they can. Even if it means a reduction in wages. it is possible to have a workplace pension, where employer also contributes.
Think before you turn it down.Relationships, Fixed Abodes And…If you leave it as late as thirty to buy an house, I dived in at 18, then you are probably not going to have much left in your pay packet for a pension.
Although you’d hope by this age that your wage and position in the company would have greatly improved. Stay on the company pension but also try to go private too….In The Family WayChildren, it’s incredible to think that the government might be asking you to consider opening a pension for your child and he’s only 9 months old, yet yourself don’t have one.
How did that happen? A Self Invested Personal Pension (SIPP) can be opened for a very small amount and regular contribution, you can even get payment holidays.Thrifty Nifty And Bang On FiftyIt’s been 25 years and you’ve lived on the planet for half century.
It’s not long before you are mortgage free, on top of which your private pension comes due in a few years. if you don’t have a pension, why not taking advantage of the statutory age of retirement rising and put the value of your previous mortgage payments on your golden years, an investment this late can still pay dividends.
Finally, State Retirement Finally In SightI am how old, 60? Am I playing bingo? Because the age of retirement was raised, and you’re not forced to retire and perhaps you didn’t have a private pension like you should have done… you’re still working.
Do you remember when your heating nearly went off or you couldn’t eat for a week? Now is the time to put that memory to good use. Do you need to withdraw your pension, can you take a small amount? Can you make your pension pot work better for you?
We’ve had a laugh up until now, a bit like life itself. But this is really serious stuff. You want to enjoy your retirement years but how to do that if you don’t have enough money.
Seriously, what are you going to do the day you retire? What are your dreams and ideals, what will you do for thirty years and can you afford it? This is your pre-retirement wake up call, a window for planning that shouldn’t be skipped:
What Will My Income Be On Retirement Day?
- It’s impossible surely, but perhaps one of your employers forgot to tell you they enrolled you into a company pension scheme. Use a pension tracing service if you think you’ve mislaid or lost a pension.
- Tally up your investments, have you still got shares in the utilities when they went public?
Do you have a savings account you forgot about? Worse still do you outstanding credit card debt? Add up all monies you have wherever it is.
- That Defined Contribution Pension scheme, came good did it?
Check the annual statement but also ask how much it might be worth upon retirement. Final salary pension scheme amounts are also good to check up on. Finally add up your state pension, if you paid NICs for at least ten years, you’re in the club.
How Your Pension Is Managed Now And In The Future
- Did you know you can move a pension?
It’s an investment and if not tied in and you can, it’s worth understanding the merits of changing your investment portfolio that’s connected to a current pension, especially if you’re due to receive it within a few years. One last boost or a careful glance to ensure it remain intact.
- Why not top up your pension yourself?
Every little helps. If you paid the mortgage off and there are no limits to the contribution you can make, add a little more, it all counts. Ensure it is protected wherever possible. If you’re feeling flush you can also delay the date you receive a pension. More time, more money – it’s hoped.
Budget And Consider The Cruises And New Car
- 30 years, you don’t get that long for murder these days.
This is how long your retirement can be. With knowing how much your collective pension pots are, coupled with value of investments just think about that for a couple of minutes. 30 years, maybe 40 years. How do you budget and plan for that? Well you have to!
Don’t Lose Your Home The Day Your Retire
- Debts, horrible things but you created them and they took advantage after.
They need paying, try not to get into a situation whereby you are using a large withdrawal from your pension pot to pay off existing debt. Get debt free before you retire.
While you can manage debt after, isn’t it so much better to have no debt and enjoy retirement as it should be and for what it is? A recent report tallied the average personal debt to be £34,000 on retirement day, and to think you worked 40 years to end up like that.
One Or Two Sugars With Your Pension, Sir?
- It is worthwhile considering how much sugar you have in your tea now you’re not travelling and working ten hours a day.
However the point is, how would you like it, how do you wish to divvy up your pension? Do you want a bit now, a lot now, more later, less now and more regular and larger payments in the future, perhaps on a decreasing scale in line with how active you will be in retirement at first? It’s a lot to think about.
- Or perhaps you wish to keep the pension locked up so it’s build and grows further.
Remember you are liable to income tax on your pension so those rates still apply over certain amounts. You can always hide parts away in other investments so that in another ten years you’ll have a greater amount to look forward to. New pension rules allow many different ways for you to invest, play and plan with your pension pot, research the alternatives.
About The New Retirement Age & Comparing State Pension Amounts
We live in confusing times thanks to the way the pension system has been altered by the Government.
For decades, it was really quite simple. Women retire at 60 and men at 65.
At the very heart of such a system is the National Insurance Scheme, of which we pay monthly contributions to support ourselves / others when we decide to stop working.
Naturally this is not an age anyone can derive of their own accord, for a long time there was a fixed statutory retirement age for everybody. Due perhaps to ageism and sexism laws this is no longer the case.
As of 2017 there are two ways in which you can find yourself in retirement:
- People tend to retire at an age when it is financially viable to do so.
You can do so at 35 if you wish, but you won’t be able to receive a Government pension until the stated statutory age. You can work beyond this age and receive a pension at a later date. Or draw on the pension while working, you will then be taxed on the collective income but will no longer pay NICs.
- Then there are private pension schemes.
These are all independent from the Government and have different ages when payments start to become applicable. So an arrangement between you and your employer to retire at 55 and receive a pension at 55 is as possible as it is 65.
Normally there was a ten year difference between private and personal pension draw down dates. However, the Government is yet to suggest if the ten years will move up in line with new statutory age recommendations for retirement.
This leaves people approaching pensionable age at a private pension level, wondering whether they will be retiring to the Sun and Golf course in the next two to three years or forced to carry on working.
It is great news that people are living longer but this situation has created significant pressures on the financial capability of paying out for each individual for an additional ten or fifteen years. Hence the statutory age being raised and the removal of forced retirement age due to poor performing pension results, or ageism.
Now to combat laws between the sexes and equality, it was essential to recognise that woman were just as capable of working to an older age as men.
This is one direct downside of seeking equality, therefore over the period leading up to November 2018, the retirement age of 65 was set for both males and females. Thereafter further changes will arrive and yearly increases between 2018 and 2020 and 2026 to 2028 will take retirement age to 66 and then 67.
Why Is Statutory Retirement Age Being Extended?
At the base of these changes is the fact that more people do live longer than previous generations.
We currently live twice as long as 1000 years ago, with great healthcare and living standards there is no knowing if a Century will be reached by all, so the government has left the decision to raise the age of retirement further in the next future to compensate for the extra burden on financial payments to the elderly. The new pension rules are explained in more detail here.
With such increases in live expectancy it’s a wonder why a new more pliable pension system has not yet been developed. One where you can enjoy life more at age 20 without working and extend retirement into the late seventies. A kind of retirement gap year.
However a change has been made to schooling recently just as it was a few decades ago, with working age being raised from 14 to 16 and now to 18.At the turn of the last century average life expectancy was a rather fulfilling 45 years of age for men and 49 for women.
We have penicillin, the NHS and better standards of living to thank for the near doubling of life expectancy in the 150 years since this was the case. A third of people born today are expected to see out their life until an average of 100 years for both men and women with the current average being 79 for men and 83 for women.
Each generation has the same problem when it comes to pension planning and retirement, no matter whether it is 40, 50, 60 or 70 years away, it really is too far a time in your life to consider it. Isn’t it? The old retain and spend now argument versus save more and benefit later, much later. As a 40 year old I can recall sitting down with a financial advisor and deciding to retain my money and still with a seemingly recently increased 28 years to go, there could be plenty of time to plan for retirement should I make it.
To be financially stable is a great way to live life and you should sit down and consider what might actually happen when retirement age arrives. There are obvious unknowns, job security, life changes but you can keep an eye on some things such as:
- What age am I likely to retire and will the government pension be enough to support me and my family? A family that may encompass a wife or husband, children and grand children. It’s also highly likely your own Mother and Father may still be alive when you retire also.
- If the state pension won’t be enough or is too little, how can you top it up? Are there ways within the current system with the government and NICs to do this. Or should I contribute to one or two private pensions along the way, on top of any employment related pension schemes?
- A scary consideration is will you actually be able to afford to retire? Especially now there is no enforceable retirement age. what financial planning should you evoke now to be more financially secure in the future?
- Alongside life insurance to ease the burden on your family, you may wish to consider a funeral plan and how your wife or children will pay when the time comes. If you can plan for retirement it is surely wise to consider funeral costs at least.
- The lifestyle you wish to live when you’re older is an unknown.
You see older people on the telly talking about retiring in sunny Spain or enjoying the golf course. But perhaps you want to go around the world, live in a different country each year, climb a mountain and still be able to have a house and take care of the children. Planning is the difference between watching wrestling on the telly continually and being active in the later years.
You, me, everybody pay into the National Insurance Scheme to ensure a viable pension, via varying rats of National Insurance Contributions (NICs). A contract we invisibly sign with the state when we’re born. Is there any other financial assistance on hand? There is, depending on your health and work status at the time of retirement.
Range Of New Disability Living Allowances, PIP and AA
Resistance to antibiotics is the doom monger of news currently, against a flood of great advances against Cancer and other long term diseases.
Stroke, heart attack, an accident, it’s another considering we don’t wish to give much though on, but clearly receiving care in your elderly years costs more than looking after yourself.
This on a backdrop of Government idea with wishing people to sell their homes to pay for their own care.This next text is probably more for people approaching retirement within the next ten to fifteen years, however is it is worthwhile taking the time to understand what government aid there might be when retirement arrives for you.
Like many schemes, the current Disability Living Allowance (DLA) is being replaced by a Personal Independence Payment (PIP). This new contract takes effect depending on your date of birth. As the changes have been made to encompass all age groups rather than simply focusing on retired or those in work.
- Born before 8th April 1948 and 65 as of 8th April 2013: If you are in receipt of DLA, then you will retain these benefits and do not need to move over to PIP. As PIP is only for those aged 16 to 65 and instead you would have been allocated Attendance Allowance.
- Born after 8th April 1948 and under 65 on 8th April 2013: If you qualify for an Attendance Allowance then you are not entitled to DLA or PIP. Shortly before withdrawal of POP in December 2018 you should have been assessed for the new PIP payments.
- Attendance Allowance and irrespective of birth date but those who have reached the age of 65:
If you have a physical illness, mental illness or disability and require care assistance in one form or another this non-means tested allowance will be granted. On the proviso that care in the day and the night is a greater payment than that of simply care during the night or day.
An independent study has compared Disability Living Allowance (DLA) and Attendance Allowance (AA) and found people are better off financially under the new system.
Do Housing Benefits Apply To Pensioners?
A wide array of currently well known benefits are being replaced by two systems, Universal Credit for those of working age and Pension Credit for those of retirement age.
We are concerned with what occurs when as a Senior on Housing Benefit, how things will change when Housing Benefit disappears. Any benefits you currently receive will instead be paid as a new housing credit with Pension Credit payments.
It is thought you will be able to access these housing credits even if you don’t apply for Pension Credit, however no matter how small the amount, it is your money so you should opt in.
Currently housing benefit is paid by your council and is means tested against rental payments and how much your income is.
It’s application is only made to tenants, not those with mortgages or home loans, there are other benefits for those under retirement age and working that will assist in helping you make a few payments to sort out your finances.
The changes from Universal Credit involving Housing Benefit to Pension Credit are as of yet unknown.
There is quite possibly nothing worse in the criminal world than the older generation being targeted and becoming victims to pension fraud. It happens a lot, being mugged via the telephone for your pension pot is a real possibility.
With statistics putting the number at 20% of seniors being cold called.
Pension scams are probably the easiest way to get a lot of money out of a person in one go.
How Do You Protect Yourself Against Pension Scams?
If someone is cold calling you to try and sell you pension advise or give it for free, put the phone down and add their number to the national unwanted call list, Telephone Preference Service (TPS).
Whether or not the call was legitimate, how can you possibly make a decision over the phone?Understanding investments is not easy at the best of time and there is always RISK. Imagine how much more risk there will be via a phone call. The UK governments holds a a register of approved financial people called the FCA.
You can check any financial advisor details with them. There’s also the Pension Regulator.The Pensions Advisory Service is an organisation that will assist you in most events with most queries. they provide advice for free on workplace and private pensions. If in doubt, throw them out and if you feel you’ve lost money, contact the Action Fraud Line on 0300 123 2040 providing as much detail as possible.
There is something quite uncanny about insurance and financial products that leaves many people not understanding much of what they have been told. You need not walk away wondering what all the glitzy jargon meant thanks to the glossary of pension terms which you can find below.
This is what life has been all about. An education, working for forty years and now you face the freedom to have a monthly wage sent by the government and no more having to work for it. The amount you receive is based upon how many collective years of National Insurance Contributions you have made.
Unlike private pension plans, the age at which you can gain access to state pension is fixed and called the statutory pension age. In what seems a bad storyline, this age is occasionally raised by a year or two every twenty years, making your date pensionable escape slightly delayed.
Personal or Private Pensions
Financial advisors. Banks. These are the places you will most likely find these financial products. Offered by investment funds and insurance houses they give you a way into stock markets and bonds while you look to achieve an ongoing pensionable income for life when you reach retirement age.
Separate from state pension and set up differently to company pension schemes, you are free to invest tax free at minimum and maximum amounts in items termed SIPPs. Contributing yourself monthly and occasionally allowed to deposit lump sums.
Workplace or Company Pensions
A perk of the job, if you’re considered fortunate enough. Alongside health care and annual wage increases, an employer may tempt you to his company by way of a defined contribution pension scheme.
You will contribute a minimum of 4% of your annual salary, the employer 3% and the government 1% in a swap for tax relief. It is removed from your pay packet, tax free, before you get paid. An amount reflecting the deduction will show on wage slip and you’ll receive an annual statement.
Final Salary Pension Schemes
This is a now defunct terminology that will be very rare to find. While there are hundreds of thousands, perhaps millions of polices being paid out. Due to funds coming in low, employers can no longer afford to run final salary payment schemes. Which were effectively securing a way to match your final salary for the rest of your life.
Money Purchase Pension Plans
This is another term for defined contribution pension plan. These have replaced final salary options and instead work along the lines of total contribution made by all parties, you employer and government and the collective amount which has been increased thanks to fund managers carefully ensuring your pension pot is enlarged over the years. At least that is the plan.
Stakeholder Pension Plans
This is probably the most protected pension investment. Fund managers cannot set their own fees, well they can, as long as they are under government ruled maximums. It’s a personal pension plan where you alone make contributions and access to the fund is heavily restricted – for good reason.
Pension Release / Unlocking
Pension release or pension unlocking is however the act of trying to make a withdrawal before you reach pensionable age.
Primarily because of tax issues that you may not understand too well and the possibility of falling short on any expected pension scheme amount that was supposed to last you thirty years.