Planning for your retirement has become more important than ever before. The state pension in our opinion is only likely to reduce in real terms over the coming years and the onus is very much on the 'individual' to plan for their own retirement.

Putting away even a small sum early on can make a big difference to the lifestyle you will enjoy when you retire. For the majority of people it is imperative not to rely on the State alone.

Often individuals have several pensions they have accumulated and may wish to review the options to consolidate into one arrangement if financially beneficial. At Mulberry Wealth Management we pride ourselves in specialist knowledge on pensions and our starting point is to look at the provision you have, try and coordinate with this where possible and design a financial plan to set a clear retirement funding strategy.

Just some of the pension plans and options available when building and drawing retirement savings:

 

A Stakeholder pension is a form of low cost Personal pension aimed at encouraging those people who do not currently have pension provision to save for their retirement. They became available on 6th April 2001.

In order to reach as wide an audience as possible, Stakeholder pension schemes are intended to be flexible and easy to understand. Employers with 5 or more employees have had an obligation to provide their employees with access to a stakeholder pension scheme since 8th October 2001, although it is not compulsory to save for retirement with a Stakeholder Pension plan or any other savings related product.

Stakeholder Pension plans are very similar to Personal Pension plans however offer a much more limited fund and investment choice mainly based on the providers own funds that go hand in hand with the lower charges; they are individual pension arrangements, meaning that they are personal and portable - you can take them with you if you change jobs.

Personal Pension Plans (PPPs) were originally designed for the millions of employed & self-employed individuals who did not have access to a company pension scheme. As with all pensions, following the recent sweeping changes made on the 6th April 2006 to pension legislation (see section on Pension simplification) these contracts are now very flexible and can allow contributions (that are eligible for tax relief) to be made of up to 100% of your earnings.

All personal pensions work on a 'money purchase' basis. This means that the money you save each month or each year into your Personal pension plan is invested (typically in investment funds) and is then used at retirement to provide you with pension benefits. Most personal pensions now offer a very wide fund choice and are not always restricted to one providers investment funds.

A SIPP is a Self Invested Personal Pension Scheme that provides you with the option of choosing when, where and how you invest the assets of your pension fund.

SIPPs have been around for a long time, since 1989, but after the introduction of Pension Simplification legislation in 2006, SIPPs have become more accessible.

more investors are feeling comfortable with taking control of their pension planning.

With a SIPP you are free to invest in:

1. Unit Trusts / Open Ended Investment Companies (OEICs)
2. Investment Trusts
3. Insurance Company Funds
4. UK Gilts / Corporate Bonds / UK, US & European Shares
5. Own Company Shares
6. Cash & Deposit Accounts
   
7. Commercial Property

The most important thing to remember is that the range of available investments depends largely on the choice of SIPP provider. Ultimately it is down to the trustees of your pension plan to agree whether they are happy to accept your investment choices into the SIPP.

 

Annuities are used to provide a pension income, in the case of pensions this income is guaranteed for life. The pension lump sum is exchange for a pension income. Once the annuity has been bought, the income is fixed, the contract cannot be reversed and the pension lump sum becomes the permanent property of the annuity provider.
The level of income that you will receive from an annuity depends upon several main factors:

1. The level of Investment
2. Age of 'annuitant'
3. Health
4. Sex

The prevailing annuity rates at the point of annuity purchase
In general, the older an annuitant the higher the income which can be secured.

Spouses pension (to protect a spouse, by providing an income, following the death of the annuitant)

Guaranteed payment periods; 5 years is typical but 10 year guarantees are possible

Escalation of benefits; income can be protected from inflation - RPI linked escalation, alternatively a fixed % annual increase in income can be secured at outset i.e. 5%.

Annuity income can be linked to investment performance for example by a 'With Profit Annuity' or 'Unit Linked Annuity'

Unsecured Pensions are a popular alternative to buying a lifetime annuity. They allow you to draw an income from your pension fund while the fund remains invested. The maximum level of income you can draw is about 120% of the level lifetime annuity payable to a single person of your age and sex; and the minimum income you can draw is zero. You can use your remaining fund to buy a lifetime annuity at any time.

Anyone in a personal, stakeholder pension or SIPP scheme can use an Unsecured Pension. However, some pension schemes will not operate Unsecured Pension for small funds.

If you are in an employer's scheme that doesn't offer an Unsecured Pension and you want to use it, you must first transfer your pension rights from that scheme into a personal pension scheme.

A Third way annuity is a halfway-house between conventional annuities and Unsecured Pension. It provides exposure to riskier assets, such as shares, but also guarantees to provide you with a minimum level of income.

Even if your pension performs poorly, you'll still get the same income giving you peace of mind. But, crucially, if the assets in your pension do well your income could rise significantly.

When you reach age 75, any un-crystalized pension funds can be used to purchase a lifetime annuity or an Alternatively Secured Pension (ASP). ASP operates in a similar way as Unsecured Pension, but with some different rules:

The maximum income you can withdraw is about 90% of a level single-life lifetime annuity and the minimum is 55%. These limits must be reviewed every year.

Regardless of your actual age, the maximum income will be based on age 75.

The funds in ASP are invested in a similar way to a Unsecured Pension arrangement and are therefore subject to investment risk. You will be able convert your alternatively secured pension into a lifetime annuity at any time.

In no way is any information on this page to be regarded as a recommendation and you should take individual advice before deciding on any strategy.

Please be aware that the value of your investment can go up and down and that past performance is no guarantee of future performance.

 

Morris Brown

Mulberry Wealth Management Ltd now incorporates the long established Cardiff based Financial Advisers Morris Brown Ltd.