Will you enjoy your retirement?

Retirement may seem a long way off for you at the moment but that doesn’t mean you should forget about it. Consider our tips, which could help you increase your retirement income – no matter what your current stage of life – and pursue the retirement you envision.

How much State Pension will you receive?

The State Pension is a valuable foundation on which to build your retirement income, together with any workplace or personal pension provision you have. If you work, you’re required to contribute, and if you don’t work, you might be making voluntary contributions or being credited as though you were contributing. You can log onto http://www.gov.uk/calculate-state-pension to get a State Pension forecast.

Track down your missing pension(s)

You might move jobs a number of times during your working life and pay into a number of pensions. It can be hard for you to keep track of your pensions. If you do lose track, you can visit www.gov.uk/find-lost-pension to track your lost pension or pensions.

Think about the ‘what if’ scenario – who inherits your pension pot?

Make sure your pension paperwork is up to date or there could be confusion over who the beneficiary should be. This is particularly important if you’re not married and you want to safeguard your partner’s position. Most pension providers have an Expression of Wishes form where you can state a preference for who should receive your pension pot once you’re no longer here. There are typically different choices depending on the type of pension and also whether you’ve started to take an income yet.

How much have you saved for your retirement?

If you don’t know, what are you expecting to live on later in life? When thinking about your income in retirement, you need to consider the sort of retirement you want and how much money you’ll need. We can help you to review how much you’ve saved for retirement so far and explore your options if you’re not saving enough.


Another factor is the rise in ‘silver splitters’ – those who divorce and form new relationships later in life. More relaxed attitudes to divorce among the ‘baby boomer’ generation in comparison with their parents and greater financial independence among women have been cited as a possible explanation for this. We recommend that you seek legal and professional financial advice to help preserve your chances of having the retirement you want and are entitled to.

Will you be affected by the impending new lifetime allowance limit changes

Thousands of pension savers could be impacted by unless they act swiftly

If you are making high levels of pension contributions you will need to obtain professional financial advice to make sure that you know whether you will be affected by the impending new lifetime allowance (LTA) limit changes. Thousands of pension savers could be impacted by the forthcoming changes unless they act swiftly.

Your total pension savings

You should check what the value of your total pension savings will be as at 6 April 2014. It is also particularly important to bear in mind how much money you have accumulated in any legacy pension schemes from a previous employer, as your current employer will not necessarily know you have one and will therefore not count this towards your total amount.

According to Standard Life, if you’re 10 years from retirement with a current pension fund of £700,000 you could exceed your allowance if your pot grows at 7% a year – even if you don’t pay another penny into it. Yet it’s unlikely you were even aware you had a problem. Of course, growth could be higher or lower depending on your investment performance and we don’t know what the allowance is likely to be in 10 years’ time.

Linked to your final salary

It’s even trickier with some company pension schemes which are linked to your final salary. It’s easy to underestimate just how valuable a final salary pension is – or how it’s tested against the LTA. You could be surprised to learn, for example, that a £25,000 paid-up pension from a previous job already eats up £500,000 of your allowance. Adding in revaluation for leaving up to retirement, at say 3.3% over 10 years, takes the pension up to £34,590 – using up almost £692,000 LTA.

You can save as much as you like towards your pension but there is a limit on the amount of tax relief you can get. The LTA is the maximum amount of pension saving you can build up over your life that will benefit from tax relief. If you build up pension savings worth more than the LTA you’ll pay a tax charge on the excess.

An individual’s entire pension savings

From 6 April 2014 the LTA will reduce from £1.5 million to £1.25 million. It applies to an individual’s entire pension savings (apart from the State Pension). The figure may sound high but many thousands of people could be affected, especially those in final-salary schemes who have built their entitlement through many years’ work.

If your pension savings are worth more than the LTA when you take your benefits, you’ll have to pay the LTA tax charge on the excess unless you have some form of LTA protection. The rate depends on how this excess is paid to you. If the amount over the LTA is paid as a lump sum – the rate is 55%, and paid as pension – the rate is 25%.
Many people had built up pension pots worth more than £1.5 million before 6 April 2006 when the LTA was introduced. LTA protection was introduced so that they didn’t have to pay the LTA tax charge on pension funds built up before this date.

Two ways you can protect yourself
There are two ways you can protect yourself from paying the LTA charge. The most common is to apply for ‘Fixed Protection’, which effectively caps your LTA at £1.5 million.

The scheme, termed by HMRC as Fixed Protection 2014, allows savers with pensions likely to exceed the £1.25 million cap to apply now – before the deadline of 6 April 2014 – for an extension to the limit. Applying for the protection will benefit those near to retirement and wanting to maximise the value of their pot – as well as savers who expect the value of their pension to grow without making any new contributions.

There are a number of restrictions to be aware of. Individuals in defined-contribution pension schemes cannot add new benefits to their existing pot. Pension savers in defined-benefits schemes can only build up benefits in line with inflation on an annual basis. No new pension arrangement may be started, other than to receive a transfer of rights from an existing pension arrangement.

An attractive alternative solution for individuals

The second way to avoid the 55% tax penalty is to apply for ‘Individual Protection’. This option may be an attractive solution for individuals who will not receive any alternative remuneration from their employer if they opt-out of their pension scheme. Savers can apply for this protection from April 6.

It is possible to apply for both Individual Protection and Fixed Protection. This would give you a LTA of £1.5 million (Fixed Protection) and contributions must stop. If you choose to restart contributions in the future, your Fixed Protection would be lost. But you would still benefit from your Individual Protection allowance rather than the standard £1.25 million LTA.

The annual allowance, meaning the amount of pension savings or contributions that can be made in any one year, will also reduce commencing 6 April 2014 from £50,000 to £40,000. The rules for the annual allowance are more complicated than those for the LTA.

Different types of annuity

In the UK, there are basically two types of annuity:

  • pension annuities (compulsory purchase)
  • purchased life annuities (voluntary purchase)

All annuities share the following characteristics:

  • they pay a level of guaranteed income
  • they turn a lump sum into a stream of future income
  • lifetime annuities guarantee to pay an income for as long as you are alive, no matter how long you live
  • when you die, payments stop, unless you have chosen a joint-life annuity, a guaranteed payment period or a value protected (money back) annuity

Tailoring the income to meet your personal circumstances
Annuities have a number of important and valuable options that allow you to tailor the income to meet your personal circumstances.

Single or joint
As you approach retirement, you’ll need to decide how you want to take an income from your pension fund. One key thing to decide is whether you want an income just for yourself (individual) or one that would continue to pay out to a partner or dependant if you were to die (joint). Your choice of income could make a big difference to you and a partner or dependant, so it’s important to consider your options.

Fixed-term annuities
If you need an income in retirement, but are unwilling to commit to an annuity for the rest of your life, you can use all, or part, of your pension fund to buy an annuity for a set number of years. These are called ‘fixed-term annuities’.

Fixed or increasing annuities
If you’re buying an annuity to provide you with a retirement income, one of the key choices you must make is whether to opt for an annuity that provides a fixed pension income or one that increases each year. You’ll initially get more with a fixed retirement income than with an increasing one, but its buying power will go down over time.

Investment-linked annuities
With an investment-linked annuity, your pension income varies to reflect changes in the value of investments, such as stocks and shares. This means you can benefit from stock market growth after your retirement. There’s also a risk that the value of your income could fall, but most investment-linked annuities limit this risk.