Work­ing out the fi­nances

Who­ever you ask, the ad­vice is al­ways to seek out the best pos­si­ble pro­fes­sional ad­vice about fi­nan­cial mat­ters

Let's Talk - - RETIREMENT SPECIAL -

Fi­nan­cial mat­ters are cru­cial when some­one re­tires or is pre­par­ing to re­tire. And the world of pen­sions can ap­pear in­cred­i­bly com­pli­cated.

The top ad­vice for those fac­ing re­tire­ment is to con­tact an in­de­pen­dent, reg­u­lated fi­nan­cial ad­vi­sor.

There are also plenty of web­sites avail­able, in­clud­ing Pen­sion Wise at www.pen­sion­wise.gov.uk.

A pen­sion is a sav­ings plan aimed at build­ing up money for your re­tire­ment. The money is paid in by you, your em­ployer or both.

The most well-known scheme is the state pen­sion. It is pro­vided when you reach re­tire­ment age. The full state pen­sion is paid to those who meet Na­tional In­sur­ance re­quire­ments.

Men used to take their pen­sion at 65 and women from 60. How­ever, from 2018 women will only be able to take the pen­sion at 65. The age is then set to rise to 66 for men and women by April 2020.

It is vi­tal you know what your state pen­sion en­ti­tle­ment will be and when it will be­gin.

You can go to www.gov.uk/your/ state­pen­sion and by fol­low­ing sim­ple in­struc­tions you find out the de­tails you need.

There are two types of pri­vate pen­sions that you can set up or that your em­ployer may of­fer:

De­fined ben­e­fit pen­sions are run by em­ploy­ers. Th­ese pay out a pen­sion which is equal to the num­ber of years worked for a com­pany mul­ti­plied by a por­tion of the em­ployee’s salary at re­tire­ment.

Known as fi­nal salary schemes, they take into ac­count the em­ployee’s salary be­fore re­tire­ment. Th­ese schemes are usu­ally gen­er­ous and are dis­tin­guished by a set out­come.

When a man re­tires, his wife gets twice the hus­band but only half the in­come - Chi Chi Ro­driguez.

De­fined con­tri­bu­tion pen­sions are com­monly run by em­ploy­ers. Known as money pur­chase schemes, they are paid into by the em­ployer and em­ployee.

Although the amount con­trib­uted is a set amount of the salary, the fi­nal in­come is not guar­an­teed.

Per­sonal pen­sion plans can be set up by in­di­vid­u­als whose em­ploy­ers do not of­fer schemes

and a group per­sonal pen­sion is a col­lec­tion of per­sonal pen­sion plans set up through an em­ployer.

Stake­holder pen­sions were in­tro­duced in 1999. Th­ese work in a sim­i­lar way to per­sonal pen­sion plans, the in­di­vid­ual re­spon­si­ble for con­tribut­ing money to build up their pot.

A pen­sion plan will not au­to­mat­i­cally pay out an­nu­ally when you re­tire, you have to de­cide how to take the money to best gen­er­ate an an­nual in­come. The most com­mon way is by buy­ing an an­nu­ity. The com­pany pays you a reg­u­lar in­come in re­turn for your pen­sion pot. The com­pany pays out a level of in­come based on how long it thinks you will live.

In­come draw­down plans al­low in­vestors flex­i­bil­ity over how they take their pen­sion. In­vestors are able to re­duce and in­crease the amount de­pend­ing on cir­cum­stances, while leav­ing the re­main­ing pot in­vested.

The in­come your pen­sion pro­vides will be taxed. Although you pay no tax when pay­ing into a pen­sion, you will have to pay tax when you take your money out. How­ever, when you take your ben­e­fits at re­tire­ment, you are en­ti­tled to take 25% as a tax-free lump sum.

Th­ese are all ba­sic facts in a com­pli­cated world. The deeper you delve, the more in­tri­cate mat­ters be­come.

The best ad­vice will al­ways be to seek the guid­ance of an in­de­pen­dent and reg­u­lated fi­nan­cial ad­vi­sor.

Six mil­lion men and women will have to wait a year longer to get their state pen­sion. The rise in the pen­sion age to 68 will be phased in be­tween 2037 and 2039, rather than from 2044 as orig­i­nally pro­posed. Those af­fected are cur­rently aged 39-47.

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