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Preparing for Retirement, Planning, Advice, Services Contact Sabre Financial Kingsbridge, Salcombe, Totnes, Devon

Preparing for Retirement.

A pension is a long-term savings plan that helps you to save for retirement in a tax efficient manner. Your contributions are invested to provide you with an income when you retire.

Retirement Advice, Planning & Services from Sabre Financial Kingsbridge

For UK taxpayers, currently every 80p you pay in is topped up to £1 by the taxman, and you may be able to reclaim further tax relief if you’re a higher or additional rate tax payer. With some pension schemes your contributions will be deducted from your pay before income tax is calculated meaning that you receive tax relief at your highest rate automatically.

A State Pension is the amount that’s given to you by the Government and is based on your National Insurance contributions (NICs) record. You’re entitled to it when you reach your State Pension age and it will continue until you die.

Whatever you ultimately decide to do, know what your options are. Contact us for more information.

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WHAT TYPES OF PENSION ARE THERE?

From the State: The basic State Pension

How much you get depends on the number of qualifying years gained through National Insurance contributions you’ve paid or been credited with throughout your working life. Currently the number of qualifying years you require will depend upon your age and whether you are a man or woman. Men born after 5 April 1945 and women born after 5 April 1950 need 30 qualifying years to be entitled to the full basic State Pension.

However the State Pension is changing on 6 April 2016. If you’ll reach State Pension age on or after that date you’ll get the new State Pension under the new rules.

The new State Pension will be based on your National Insurance (NI) record alone. To receive the maximum new State Pension, you require 35 years NI record. From April 2016 the new State Pension will be £155.65 per week.

PENSION SCHEMES PROVIDED BY YOUR EMPLOYER:

Many employers provide a workplace pension scheme for their staff. A workplace pension simply means it’s linked to your occupation and work, rather than an individual stand-alone plan you choose for yourself. Workplace Schemes can be either Final Salary Schemes or Money Purchase Schemes.

Work linked pensions can be a good option as most employers will also make a contribution to your pension fund.

By 2017, all employers will be required to enrol eligible employees into a pension scheme which satisfies auto-enrolment legislation. Both the employee and employer will be obliged to pay a minimum level of contributions.

TYPES OF WORKPLACE PENSIONS:

Final Salary schemes (also called ‘defined benefit schemes’):

These link your retirement income to your wages and your employment history. They can pay a retirement income equivalent of up to two thirds of your final salary. If your company offers one of these and you’re eligible to join – many are now closed – it may well be in your best interest to do so.

Group Money Purchase schemes (also called ‘defined contribution schemes’):

With this type of pension, the size of your retirement income is linked to a number of factors, including how much money has been paid into your pension pot, and the investment growth achieved. Companies may either run the scheme as an occupational scheme or alternatively provide a group personal pension or group stakeholder plan – often depending on the size of the firm.

 

IF YOU’RE SELF-EMPLOYED

Individual Pensions

You can also save for your retirement in an individual pension. This is basically your own pension pot that will continue regardless of where you are working. You can even pay into an individual pension if you’re not working, up to certain limits.

Individual pensions can be split into two types:

1. Personal Pension Plans

2. Self Invested Personal Pensions (SIPPs)

Personal Pension Plans

These schemes are likely to have a higher minimum contribution – often at least £100 per month – and higher annual charges than Stakeholder schemes.

However, they normally offer greater investment choice and flexibility.

SIPPs

Although with most personal pension schemes, you can let your pension provider make the day to day investment decisions, a Self Invested Personal Pension (SIPP) can allow you to take a much more active role in the investment of your pension pot.

You may be able to choose funds from a range of fund managers – not just the ones from your pension provider – and you could invest directly in commercial property. But you should seriously consider getting financial advice before you sign up.

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QUESTIONS TO ASK

The pension you choose will depend on your individual circumstances. To get you started here are some questions to ask:

Will the State Pension give me enough income to maintain my current lifestyle?

If you think you would need more than the pension available from the State, you should probably start to think about saving for retirement sooner rather than later.

Does my employer have a pension scheme and would they contribute towards my pension?

If your employer has a pension scheme, you should certainly consider joining, particularly if your employer will contribute. Remember that by 2017, all employers will have to provide their employees with access to a pension scheme and contribute to it.

What are my existing pension arrangements?

You may be a member of your current or former employer’s occupational pension scheme or group personal pension, for example. Alternatively you could already have a personal or Stakeholder pension.

Do all individual pensions receive tax relief?

Usually any payments that you make into a personal or Stakeholder pension plan can qualify for full tax relief. So, effectively, the taxman ‘tops up’ your pension. The value of the tax benefits depends on your individual circumstances. Your circumstances and tax rules may change in future.

How does it work if I am a basic rate taxpayer?

If, for example, you make a payment of £80 a month to your individual pension plan, HM Revenue and Customs will top it up with an additional payment of £20 (basic rate tax relief). So you now have £100 a month going into your pension plan.

What you pay:

£80

Add tax relief:

£20

Total going in to your pension:

£100

How does it work if I am a higher rate taxpayer?

If, for example, you pay the same £80 you’ll get the same automatic £20 top-up. You can then claim the difference between basic and higher rate tax relief in your self-assessment tax return. This is currently £20, so your £100 gross payment effectively costs you only £60 under current tax rules.

What you pay:

£80

Add automatic tax relief:

£20

Additional tax relief you reclaim:

£20

Net cost to you:

£60

Total going in to your pension:

£100

The information on this page is based on current tax rules, which may change in the future.

Additional rate taxpayers (those with taxable income over £150,000 pa) may also claim additional rate tax relief via their tax return.

Is there any upper limit to how much I can pay in?

Currently, tax relief is available on any payments you make that doesn’t exceed your relevant UK earnings, or £3,600 (gross) if higher, in each tax year. Most pension providers will not accept payments from you that do not qualify for tax relief.

In addition, the Government sets allowances that apply to the amount of payments made to your pension plan each year. If the total contributions to all your pension plans in any tax year, including any by your employer, are more than the Government’s Annual Allowance, you’ll normally be liable to pay a tax charge based on your highest rate of income tax. The Annual Allowance is set at £40,000 for the 2015/2016 tax year.

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