The single most important decision you can make to help realise your long-term goals

Retirement planning involves making your plans for the future now – that means investing your money with the aim of maximising its value ready for when you retire. Careful retirement planning, the right mix of assets and starting sooner rather than later will help lead to the retirement you are looking for.

Historically, for many people, the traditional view of saving for retirement was to simply put your money into a pension, with few decisions to make in the run-up to your retirement date and no choice over how the pension was taken.

Reviewing your retirement planning
Having a pension today is recognised as just one important step along the path to achieving your dreams once you have stopped working. Now, not only must you carefully consider where you actually invest your pension money and how you are going to use your pension, but if appropriate you should also review other forms of retirement savings. Reviewing your retirement planning is critical and probably the single most important decision you can make to help you realise your long-term goals.

Different investment choices produce different results. It’s essential that you contact us to review all your retirement investments to make sure they are heading in the right direction. If your circumstances change, some investments may no longer be appropriate. It’s important to get these things right, as you will be relying on the provisions you make now to generate income after you retire.

Factors that will determine your strategy
When building or reviewing your pension portfolio, there are a number of factors that will determine your strategy, including the level of risk you are willing to take. This is likely to change throughout your life, which means your investment strategy will also need to change. Receiving professional advice plays a vital role in helping to make sure that your pension holdings match your risk profile and your investment goals.

Typically, people in the early years of the term of their pension may feel they have time to take more risks with their investments, to increase the potential for higher returns. As they approach retirement and the duration of the investment is shorter, they may prefer, more predictability, to start to plan for their future after work. Alternatively, if they have reached their pension age and are still investing part of their fund while drawing benefits, they may prefer to keep an element of greater risk in return for higher potential growth.

When it comes to retirement planning
Your 40s is ‘the golden decade’ when it comes to retirement planning. This is when you should be putting as much as possible into your pension to give your contributions time to grow.

In your 50s, you may want to start
making decisions about your retirement. If you are going to convert all of your retirement funds into income the moment you retire, you may wish to start reducing risk now. If you expect to keep it mainly invested, you may wish to keep a good weighting in investments based on shares. After all, with the growing trend towards taking work in retirement, many people may feel they can afford to keep their pension invested for longer while drawing an income.

Delaying the start of your retirement provision may have an obvious impact on the potential growth of your pension. Not only will the time period for growth potential be reduced, but you could also be passing up the opportunity for valuable tax relief.

Streamlined pension regime
Pensions have always provided a highly tax-efficient environment for long-term retirement investments. However, in April 2006, a streamlined pension regime introduced a number of additional benefits, including the potential to contribute larger sums into your pension fund when the timing is right for you.

Key pre-retirement considerations
People estimate that living reasonably comfortably in retirement requires around 60%[1] of the income you had while you were working. Everybody’s circumstances are different, but the key considerations for most people when they think about retiring will come down to factors such as:

– if they’re renting, paying a mortgage or mortgage-free
– if they have any debt
– if they plan to keep working
– how much money they have saved in pensions and other investments

[1] Source: Scottish Widows,
October 2014

Over half of the UK population unaware of government plans

Over half of the UK population are unaware of government plans to reform the State Pension and the impact that will have on them, according to recent research[1]. Among the 55 to 64-year-old age group, 32% are unaware of the changes due to come into effect in April 2016.

Underestimating State Pension values
Although most of the respondents underestimated the value of their State Pension and admitted to not knowing the details of the reforms, two thirds of men and women regard it as important to their retirement income planning.

Of those surveyed, just under half of 55 to 64-year-olds were unsure as to whether or not they would be better off under the new State Pension system compared to the current one.

Key part of government reforms
The flat rate State Pension is a key part of government reforms to the UK’s retirement planning and will benefit savers by demonstrating the value of pension saving. But just under half of those aged between 55 and 64 who are about to retire have no understanding of whether or not they will be better off.

Women are more likely not to know the detail of the flat rate pension reforms – which require people to have worked and paid National Insurance contributions for
35 years – than men. Around 57% of women admitted to not knowing the details, compared with 43% of men.

New State Pension
The new State Pension will be a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016.
You’ll be able to get the new State Pension if you’re eligible and:

– a man born on or after 6 April 1951
– a woman born on or after 6 April 1953

The new State Pension will replace the current State Pension scheme. You’ll receive your State Pension under the current scheme if you reach State Pension age before 6 April 2016. You can still receive a State Pension if you have other income like a personal pension or a workplace pension.

How much you can get
The full new State Pension will be no less than £148.40 per week. The actual amount will be set in autumn 2015. Your National Insurance record is used to calculate your new State Pension, and you’ll usually need 10 qualifying years to get any new State Pension.

The amount you receive can be higher or lower depending on your National Insurance record. It will only be higher if you have over a certain amount of Additional State Pension. In addition, you may have to pay tax on your State Pension.

Working after State Pension age
You don’t have to stop working when you reach State Pension age but you’ll no longer have to pay National
Insurance. You can also request flexible working arrangements.

Eligibility
You’ll be able to claim the new State Pension if you’re:

– a man born on or after 6 April 1951
– a woman born on or after 6 April 1953

The earliest you can receive the new State Pension is when you reach State Pension age. You’ll usually need at least 10 qualifying years on your National Insurance record to receive any State Pension. They don’t have to be 10 qualifying years in a row.

This means for 10 years, at least one or more of the following applied to you:

– you were working and paid National Insurance contributions
– you were getting National Insurance credits, e.g. for unemployment, sickness or as a parent or carer
– you were paying voluntary National Insurance contributions

If you’ve lived or worked abroad, you may still be able to receive some new State Pension and could also qualify if you’ve paid married women’s or widow’s reduced rate contributions.

Defer your new State Pension
You don’t have to claim the new State Pension as soon as you reach State Pension age. Deferring the new State Pension means that you may receive an extra State Pension when you do claim it. The extra amount is paid with your State Pension (e.g. every four weeks) and may be taxable.

How much you’ll get
The rates and minimum time you’ll need to defer for will be confirmed in 2015. It’s expected that you’ll need to defer for at least nine weeks – your State Pension will increase by 1% for every nine weeks you put off claiming. This works out at just under 5.8% for every full year you put off claiming. After you claim, the extra amount you get because you deferred will usually increase each year in line with inflation.

How it’s calculated
Your new State Pension is based on your National Insurance record. National Insurance contributions or credits on your National Insurance record before 6 April 2016 will count towards your new
State Pension.

Valuing your National Insurance contributions and credits made before 6 April 2016
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension.

Your starting amount will be the higher of either:

– the amount you would get under the current State Pension rules (which includes basic State Pension and Additional State Pension)
– the amount you would get if the new State Pension had been in place at the start of your working life

Your starting amount will include a deduction if you were contracted out of the Additional State Pension. You may have been contracted out because you were in a certain type of workplace, personal or stakeholder pension.

If your starting amount is less than the full new State Pension
You may be able to get more State Pension by adding more qualifying years on your National Insurance
record after 5 April 2016 (until you reach the full new State Pension amount or reach State Pension age – whichever is first).

Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.24 a week (which is £148.40 divided by 35) to your new State Pension.

If your starting amount is more than the full new State Pension.
The difference between your starting amount and the full new State Pension is called your ‘protected payment’. Your protected payment is paid on top of your new State Pension and increases each year in line with inflation. Any qualifying years you have after 5 April 2016 won’t add more to your State Pension.

You didn’t make National Insurance contributions or get National Insurance credits before 6 April 2016
Your State Pension will be calculated entirely under the new State Pension rules. You’ll usually need at least
10 qualifying years on your National Insurance record to get any State Pension. You’ll need 35 qualifying years to receive the full new State Pension, and you’ll get a proportion of the new State Pension if you have between 10 and 35 qualifying years.

Get a State Pension statement
You can get a State Pension Statement that can tell you how much new State Pension you may get.

You’ve been in a workplace, personal or stakeholder pension
Your starting amount may include a deduction if you were in certain:

– earnings-related pension schemes at work (e.g. a final salary or career average pension) before 6 April 2016
– workplace, personal or stakeholder pensions before 6 April 2012

You may have paid lower National Insurance contributions and paid into one of these pensions instead. This is known as being ‘contracted out’ of the Additional State Pension and will affect most people who have been in work.

You can check with your pension provider if you’ve been contracted out in the past. The Pension Tracing Service
might be able to find your pension providers’ contact details if you’ve lost contact with them.

Changes to contracting out from 6 April 2016
On 6 April 2016, these rules will change so that if you’re currently contracted out:

– you will no longer be contracted out
– you will pay more National Insurance (which will be the standard amount of National Insurance)

Check if you’re currently contracted out
You may be able to see if you’re contracted out by looking at your payslip. You’re contracted out if the National Insurance contributions line has the letter D or N next to it. You’re not contracted out if it has a letter A. You can check with your employer or pension provider if there is a different letter.

You’re more likely to be contracted out if you work in public sector organisations and professions such as:

– NHS
– local councils
– fire services
– civil service
– teachers
– police forces
– armed forces

Lower rate National Insurance
You pay National Insurance at a lower rate if you’re contracted out. Check with your employer to find out if you’re contracted out.

Your new State Pension is based on your National Insurance record when you reach State Pension age. You’ll usually need to have 10 qualifying years on your National Insurance record to receive any new State Pension. You may get less than the new full State Pension if you were contracted out before 6 April 2016.

You may receive more than the new full State Pension if you have over a certain amount of Additional State Pension.

You’ll need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016.

Qualifying years if you’re working
When you’re working, you pay National Insurance and get a qualifying year if:

– you’re employed and earning over £153 a week from one employer
– you’re self-employed and paying National Insurance contributions

You might not pay National Insurance contributions because you’re earning less than £153 a week. You may still get a qualifying year if you earn between £111 and £153 a week from one employer.

Qualifying years if you’re not working
You may receive National Insurance credits if you can’t work – e.g. because of illness or disability, you’re a carer or if you’re unemployed.

For example, if you:

– claim Child Benefit for a child under 12 (or under 16 before 2010)
– get Jobseeker’s Allowance or Employment and Support Allowance
– get Carer’s Allowance

Gaps in your National Insurance record
You can have gaps in your National Insurance record and still receive the full new State Pension. You can obtain a State Pension statement which will tell you how much State Pension you may get. You can then apply for a National Insurance statement from HM Revenue and Customs (HMRC) to check if your record has gaps. You may be able to make Voluntary National Insurance contributions if you have gaps in your National Insurance Record that would prevent you from getting the full new State Pension.

Inheriting or increasing State Pension from a spouse or registered civil partner
You may be able to inherit an extra payment on top of your new State Pension if you’re widowed. But you won’t be able to inherit anything if you remarry or form a new registered civil partnership before you reach State Pension age.

Inheriting Additional State Pension
You’ll inherit part of your deceased partner’s Additional State Pension if your marriage or registered civil partnership with them began before 6 April 2016 and one of the following applies:

– your partner reached State Pension age before 6 April 2016
– they died before 6 April 2016 but would have reached State Pension age on or after that date

It will be paid with your State Pension.
Inheriting a protected payment
You’ll inherit half of your partner’s
protected payment if your marriage or registered civil partnership with them began before 6 April 2016 and:

– their State Pension age is on or after 6 April 2016
– they died on or after 6 April 2016

It will be paid with your State Pension.

Inheriting extra State Pension or a lump sum
You may inherit part of or all of your partner’s extra State Pension or lump sum if:

– they died while they were deferring their State Pension (before claiming) or they had started claiming it after deferring
– they reached State Pension age before 6 April 2016
– you were married or in the registered civil partnership when they died

Your partner’s National Insurance record and your State Pension
The new State Pension is based on your own National Insurance record. However, you might be able to increase your new State Pension if you’re a woman and paid married women’s and widow’s Reduced Rate contributions, so you need to find out if you’re eligible.

If you get divorced or dissolve your registered civil partnership The courts can make a ‘pension sharing order’ if you get divorced or dissolve your registered civil partnership. You’ll receive an extra payment on top of your State Pension if your ex-partner is ordered to share their additional State Pension or protected payment with you. Your State Pension will be reduced if you’re ordered to share your additional State Pension or protected payment with your partner.

Living and working overseas
You may contribute to the pension scheme of the country that you live or work in. Contact the pension service of the country you live or work in to find out if you are eligible. You may also get a State Pension from both the country you worked or lived in and the UK if you meet the eligibility for both countries. You’ll have to claim your pension in each country.

Your UK State Pension will be based on your UK National Insurance record. However, you may be able to use your time abroad to make up the 10 qualifying years needed to get any new State Pension.

This is most likely if you’ve lived or worked in:

– the European Economic Area (EEA)
– Switzerland
– certain countries that have a social security agreement with the UK

You will meet the minimum qualifying years to get the new State Pension because of the time you worked overseas. Your new State Pension amount will
only be based on the seven years of
National Insurance contributions you made in the UK.

Retiring overseas
You can claim the new State Pension overseas in most countries.

Your State Pension will increase each year but only if you live in:

– the European Economic Area (EEA)
– Switzerland
– certain countries that have a social security agreement with the UK

Your new State Pension may be affected if your circumstances change. You can obtain more information from the International Pension Centre.

Source:
[1] Research for MetLife conducted online between 21–22 May among a nationally representative sample of 2,038 adults by independent market research firm ICM.

New rules will simplify the existing regime
The Chancellor, George Osborne, has brought forward the expected announcement on the tax charge that applies to certain individuals’ pensions on their death. The new rules will simplify the existing regime and come into force from 6 April 2015, abolishing the 55% tax that applies to untouched defined contribution pension pots of people aged 75 or over, and to pensions from which money has already been withdrawn.

Drawing pension money
This means that from 6 April 2015, if a person who dies is 75 or over, the person who receives the pension pot will only pay their marginal tax rate as they draw money from the pension. If someone aged under 75 dies, the person who receives the pot is able to take money from the pension without paying any tax. Beneficiaries will be able to access pension funds at any age and the lifetime allowance, currently £1.25 million, will still apply.

Passed pension benefits
Those who are passed pensions from anyone who dies before 6 April 2015 could still benefit so long as the payment is delayed until after that point. The change is another positive move for UK savers, building on the flexibility outlined in Budget 2014 and giving people another avenue of financial planning using their pension pots. The change will give people more security about keeping money in their pension scheme, perhaps to pay for increased costs in later life.

More appealing transfers
The change should make transfers from defined benefit (DB) to defined contribution (DC) schemes more appealing for those with ill health, as well as for people who will see their pension more as part of their family wealth. But there do still remain risks for the elderly, which need to be thought through. If they look to use the new flexible opportunities to draw down benefits rather than take out an annuity, they could be at risk of breaching the lifetime allowance when they are older and suddenly suffering a 55% tax rate which they cannot then avoid. There still needs to be a review of unintended consequences.

The most radical reforms this century

In Budget 2014, Chancellor George Osborne promised greater pension freedom from April next year. People will be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax-free.

For some people, an annuity may still be the right option, whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown.

Extended choices
‘We’ve extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum,’ Mr Osborne said.

From 6 April 2015, people will be allowed full freedom to access their pension savings at retirement. Pension Freedom Day, as it has been named, is the day that savers can access their pension savings when they want. Each time they do, 25% of what they take out will be tax-free. Under current rules, a 25% withdrawal must be taken as a single lump sum on retirement to be free of tax.

Free to choose
Mr Osborne said, ‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long-term economic plan.’

From 6 April 2015, people aged 55 and over can access all or some of their pension without any of the tax restrictions that currently apply. The pension company can choose to offer this freedom to access money, but it does not have to do so.

Accessing money
It will be important to obtain professional advice to ensure that you access your money safely, without unnecessary costs and a potential tax bill.

Generally, most companies will allow you to take the full amount out in one go. You can access the first 25% of your pension fund tax-free. The remainder is added to your income for the year, to be taxed at your marginal income tax rate.

This means a non–tax payer could pay 20% or even 40% tax on some of their withdrawal, and basic rate taxpayers might easily slip into a higher rate tax band. For those earning closer to £100,000, they could lose their personal allowance and be subject to a 60% marginal tax charge.

Potential tax bill
If appropriate, it may be more tax-efficient to withdraw the money over a number of years to minimise a potential tax bill. If your pension provider is uncooperative because the contract does not permit this facility, you may want to consider moving pension providers.

You need to prepare and start early to assess your own financial situation. Some providers may take months to process pension transfers, so you’ll need time to do your research.

What are your options?
It’s important to ask yourself some important questions. Are there any penalties for taking the money early? Are these worth paying for or can they be avoided by waiting? Are there any special benefits such as a higher tax-free cash entitlement or guaranteed annuity rates that would be worth keeping?

If you decide, after receiving professional advice, that moving providers is the right thing to do, then we can help you search the market for a provider who will allow flexible access.

Importantly, it’s not all about the process. You also need to think about the end results.

Withdrawing money
What do you want to do with the money once you’ve withdrawn it? You may have earmarked some to spend on a treat, but most people want to keep the money saved for their retirement. Paying off debt is usually a good idea.

If you plan just to put the money in the bank, you must remember you will be taxed on the interest. With returns on cash at paltry levels, you might be better keeping it in a pension until you need to spend it. Furthermore, this may also save on inheritance tax.

Finally, expect queues in April 2015. There’s likely to be a backlog of people who’ve put off doing anything with their pension monies since last year. Those who get through the process quickly and efficiently will be the ones who’ve done the groundwork.

The contents of the Taxation of Pensions Bill, published on 14 October and dealing with pension reforms, are the most radical this century and are likely to affect everyone. There is a lot to think about, and you should obtain professional advice sooner rather than later to check how these reforms may impact on your particular situation.

Three very important questions you need to consider, sooner rather than later

Inheritance Tax (IHT) in the UK may be one of life’s unpleasant facts, but with the appropriate IHT planning and professional advice, we could help you pay less tax
on your estate. The aim of this guide is to provide a brief outline of IHT, a subject that was once something that only affected very wealthy people.

Taxing times
The rapid rise in the property market in recent years has not been matched by a corresponding rise in the IHT threshold. The threshold is currently just £325,000 – any assets above this level are taxed at 40%.

Married couples and registered civil partners have a joint estate of £650,000 before any IHT is payable. The threshold usually rises each year but has been frozen at £325,000 for tax years up to and including 2017/18. Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules.

Your estate consists of all the assets you own including your home, jewellery, savings and investments, works of art, cars, and any other properties or land – even if they are overseas.

It’s usually payable on death. But there are certain circumstances (if you put assets into certain types of trusts, for example) when IHT becomes payable earlier. Any part of your estate that is left to your spouse or registered civil partner will be exempt from IHT. The exception is if your spouse or registered civil partner is domiciled outside the UK.

Nil rate threshold
Every individual is entitled to a Nil Rate Band (that is, every individual is entitled to leave an amount of their estate up to the value of the nil rate threshold to a non-exempt beneficiary without incurring IHT). If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of nil rate band unused on the death of your deceased spouse, provided your executors make the
necessary elections within 2 years of your death.

Gifting it away
You are allowed to make a number of small gifts each year without creating an IHT liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or partner.

We all look forward to stopping work, embarking on a new path and making the most of our new-found freedom. But with all the talk and concern about dwindling retirement funds and our shaky economy, many retirees and soon-to-be-retired boomers need to consider three very important questions, sooner
rather than later.

Ask yourself these three questions when planning for your future retirement:

1. How long will I be retired for?
According to the Institute of Fiscal Studies, 58.5%[1] of workers haven’t given any thought to how long their retirement could last. A 65-year-old can now typically expect to live for about another 20 years. That could mean you’re retired for almost as long as you’ve been saving for retirement. Be clear when you want to stop working, but think of your
pension savings as deferred pay
and budget accordingly.

2. How much do I need to invest?
Paying more into your pension may not necessarily be top of your to-do list. It’s tempting to think it’s something you need to worry about in the future. You need to be investing as much as you can for as long as you can to make every year count. Maximising tax allowances can also make retirement funds last longer. As well as contributing to your pension pot, you can use other savings and investments to help fund your retirement.

3. How will I stay on track?
Once you’re investing, it’s also worth keeping sight of your retirement goals to make sure you’re on track to meet them. 74% of under-45s with pensions have no idea what their pension pots are currently worth, and 79% say they don’t know what income they are expecting when they retire. These figures suggest many people don’t really know the true value of their pension until they are older and in the run-up to retirement, despite the fact that they are likely to be receiving annual pension statements. You should regularly review your pension.

Source:
[1] All figures unless otherwise stated are from YouGov Plc. Total sample size was 2,018 adults, of which 1,361 have a pension. Fieldwork was undertaken between 9–12 August 2013. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).