Retirement Planning

The concept of preparing for retirement can be overwhelming for some, as there are a multitude of things that need to be taken into consideration as you approach retirement. Reviewing your finances to ensure you will be able to afford the lifestyle you want in your later years is key.

At Lawrence Grant, we pride ourselves in helping countless individuals plan for a comfortable retirement that is tailored to their particular needs and circumstances.

There are various methods by which you can save for your retirement years; including ISAs, annuities, or property, etc. The most popular method, however, is by having a pension to lean on. 

You may find your financial circumstances change quite drastically after retirement, as your source of income changes and declines. You are taxed easily and accurately (with PAYE) on your single source of income when you are employed, but after retirement taxations tend to get less simple. You may have multiple pensions, such as a taxable state pension, and tax must be deducted after it has been paid to you. In addition to this, savings interest makes up a large portion of your taxable income. Factors such as these pose a difficulty for HMRC to get your tax right, so we aim to make things simpler and easier for your retirement years. 

Key Issues 

Each individual's strategy for retirement planning is different, and can be determined according to their age, the number of years before retirement, and other factors. Some of the key issues that must be taken into consideration are listed below:

• Are you self-employed?
• What amount can you invest towards retirement?
• Do you have a workplace pension or personal pension? 
• What amount will you receive from the state pension?

If you are a business owner, you could arrange to setup a company pension scheme which could either be an EPP (Executive Pension Plan) or a SSAS (Small Self-Administered Scheme). Each scheme has their advantages and disadvantages and the choice of scheme would depend on your personal circumstances.

Anyone aged under 75 in the UK can start a SIPP (Self-Invested Personal Pension). SIPPs are generally suitable if you understand financial markets and are prepared to spend time researching and actively manage your investments.

A Pension: Save money for later in life

A pension is a retirement fund that must be paid to an individual once they have stopped working. This could be a workplace pension, a personal pension, or a state pension.

Often times, a state pension is not enough to live on, and people try to secure a workplace pension or personal pension in addition to meet their needs. For most personal and workplace pensions, the amount you are eligible to receive depends on:

• What you have invested 
• How well these investments have done
• Your health and age at the time of receiving your pension 

The money you put towards pension schemes often gives you access to tax reliefs up to certain limits, and we at Lawrence Grant are here for any queries you may have regarding the tax reliefs you may be eligible for.

Workplace Pensions

If you are over 22, earn more than £10,000 a year, and are under the State Pension age, it is your employer's responsibility to enrol you into a workplace pension scheme. You and your employer can make additional payments into this scheme to increase your pension pot. There are two kinds of employer pension schemes:

• A defined contribution scheme: This type of scheme pays a retirement income that reflects the invested amount and the performance of the underlying investment fund.
• A defined benefit scheme: This is a rare type of scheme that pays a retirement income that reflects your personal earnings. 

Personal Pensions

Some people prefer having a personal pension so that they have access to extra money later in life, or if they are self-employed and do not have a workplace pension to count on. If you are not working but can afford to pay into a pension scheme, then a personal pension is the right investment to make. 

You may qualify for income tax relief if your investments in personal pensions are limited to the greater of £3,600 and the amount of your UK relevant earnings, but subject also to the annual allowance.

Taxes, especially when it comes to pensions, may sound confusing from a distance. Seeking advice from retirement planning experts can certainly aid your post-retirement tax planning. 

State Pensions

The pension you receive from the government after reaching the required pension age is called a 'State Pension' and is based on your national insurance record at the time. 

Individuals who reach the required state pension age after 5 April 2016, and have at least 35 years of national insurance contributions (NICs) or credits, receive a flat-rate pension which is worth £175.20 per week. Whereas individuals who reached state pension age before 6 April 2016 will continue being eligible for a basic State Pension of £134.25 per week.

Increasing State Pension

• Deferring your pension: Delaying your pension payments makes it possible to get more money for every year that you defer.
• Pension Credit:  People with low income are eligible for a minimum weekly amount when they apply for pension credit. 
• Over 80 Pension: Through this, people over 80 can apply for a weekly payment of £82.45 from the government.

Taxation of State Pension 

The state pension is not taxed at source, so you must determine if you owe tax on it at the time of retirement by adding it to all taxable sources of income. If you find that the sum income from your pensions and work does not meet the amount of your personal allowance limit (£12,570), then your earnings from the State Pension will not be taxed. For those people who have an income higher than their allowances, tax is collected by PAYE (Pay as you earn) methods or by an annual self-assessment tax return in which you pay tax by 31 January the following year. 

EPP (Executive Pension Plan)

An Executive Pension Plan is a company pension scheme that is set up by the company for the benefit of key employees and directors to save for retirement. An EPP is set up by Trustees of behalf of members. When an individual joins an executive pension plan, they become a member of the company's pension scheme.

SSAS (Small Self-Administered Scheme)

A SSAS provides the structure and flexibility that enables senior employees, usually company directors to use the scheme as a financial tool within the business.

SSAS s offer the highest level of flexibility of any pension scheme in the UK, coupled with the greatest level of control for the members. This includes loaning money to your company or buying property that your company occupies.

SIPP (Self-Invested Personal Pension)

A SIPP is a pension that allows you to save, invest and build a fund to utilise when you retire. This type of personal pension investment works in a similar way to a standard personal pension. The main difference is that with a SIPP, you have more flexibility with the investments you can choose.

The advantages of a SSAS over a SIPP:

• A SSAS can loan funds to companies connected to the members.
• SSASs are multi-member schemes so make co-investment very simple and cost effective.
• Each SSAS is a scheme in its own right and is not connected to a provider so you remain in control at all times.

Getting Professional Help

You can make your retirement period as financially secure as possible by taking action now and planning ahead. Some important steps required are to seek professional help for during your planning include:

• Choosing your personal and workplace pension schemes 
• Planning your savings to ensure easily accessible funds 
• Selecting the method of payment for receiving your pension 
• How to use your business to help build your retirement fund 
• Calculating how much must be saved for a comfortable pension that is tax-advantaged

We at Lawrence Grant provide a high level of support that is tailored to your individual retirement needs. Our goal is to make sure that your planning is thorough and that your retirement years are as comfortable as financially possible. Afterall, these should be some of the best years of your life!