Steps to follow
- The state pension is worth less than £5,000 per annum for a single person, and about £7,500 for couples. You can draw it, if you have paid enough national insurance contributions, at the age of 65.
- This is not enough, so you will have to financially plan for your retirement. You may want to take out a private pension or an occupational pension. Alternatively, some people eschew pensions altogether and invest in property, shares and ISAs. It’s your choice.
- Pensions benefit from tax relief. Effectively, you get £1 for every £0.80 (lower tax rate) or £0.60 (higher rate). It grows in a tax-free environment.
- You can transfer your pension into a different fund, but you cannot touch the money until you are 55.
- The best type of occupational pension is a final-salary scheme. For every year of employment you build up a percentage of your salary, usually a sixtieth. This means that after forty years, you can retire on two-thirds of your final salary. These are expensive to run and are, consequently, becoming less common.
- A defined contribution scheme is another type of occupational pension. You pay in money which is then invested in the stockmarket. Your employer may also contribute. The level of income paid out at the end is not guaranteed.
- You can draw your occupational pension while continuing to work.
- You cannot draw a pension until you are 55.
- If you are self-employed, your options are a private pension or a stakeholder pension. How much money you have depends on how much you put in, where it is invested, and how well the investment performs.
- When you retire you can take up to 25 per cent of your pension fund as a tax-free lump sum. You have until the age of 75 to use the remainder to purchase an annuity, which will provide you with income for the rest of your life.
- You can pay up to £1.8 million into a pension scheme (this figure is for the 2010/2011 tax year). This is known as the lifetime limit. Any more than this will incur tax at 55 per cent.
- You can invest up to 100 per cent of your income annually, up to a limit of £215,000. This figure will rise.
- A SIPP (self-invested personal pension) is a tax-free vehicle that allows you to manage your own investments. It gives you tax efficient savings when you retire.
What to watch out for
When you retire, your pension is treated as taxable income. Bear this in mind when calculating your future income requirements.
Solicitor’s top tip
If you have a complaint about your pension, your first resort is to the adviser or company who sold it to you. If dissatisfied, you can make a complaint to the Pensions Ombudsman and the Financial Ombudsman Service. The Pensions Advisory Service offers free advice.
Useful links
Free advice
www.direct.gov.uk
www.direct.gov.uk
www.pensions-ombudsman.org.uk
www.financial-ombudsman.org.uk
www.moneymadeclear.fsa.gov.uk
www.thepensionsregulator.gov.uk
Online services
www.pensionsadvisoryservice.org.uk
www.pensionsorter.co.uk
www.hmrc.gov.uk
www.moneymadeclear.fsa.gov.uk
direct.gov.uk
