Pensions

Planning your retirement:

Helping you to plan for your retirement is a large part of what we do at PAB Wealth Management. It is one of the most important services we provide as a financial advice firm, our financial advisors will work tirelessly to ensure when it comes to your retirement, everything is as it should be and you are able to continue living the lifestyle to which you have been accustomed.

It’s never too soon to start planning your retirement. You may be thinking about making arrangements for a retirement in the not too distant future. Or you could be at the very start of your career and wanting to make sure your pension planning gets off to a good start. At PAB Wealth Management it is the job of our financial advisors to guide you through the process and make sure you get the right financial advice based on your personal circumstances.

Whatever your time in life, we can help you focus on the things which are most important to you ensuring you begin to take the right steps at the right time. Working with a carefully selected panel of providers we will be on hand to work with you, ensuring everything is moving smoothly in the right direction.

Why do I need a pension?

When you retire you still need income to continue to pay for your day to day expenses, but in addition to this you will want to maintain the lifestyle to which you have become accustomed. Investing in a pension will help to ensure that you have a secure income for the rest of your life when you choose to retire. Your financial advisor will provide you with the financial advice you need to ensure you have enough income in retirement and to help you to continue to live the lifestyle which you have become accustomed to. 

How much can I invest in my pension per year?

There is no limit on the amount you can save into your pension during each tax year. But, there is a limit on the amount you can be save each tax year with tax relief applying and before a tax charge might apply. The limit is currently £40,000 for the tax year 2022-2023. Your financial advisor will discuss with you the correct level of contributions you should look to make based on your own personal circumstances.

When should I start saving for retirement?

Saving for retirement will depend on your own personal circumstances, but it is a good idea to start as early as possibly and in an ideal world this should be as soon as you start earning. Your financial advisor will be able to discuss with you the best time to start planning for your retirement. By starting early this gives you the chance to accumulate more in your savings pot and means that your initial contributions will not need to be as high as if you starting planning for retirement later in your life. If you start your retirement planning later in life you might find yourself playing catch-up to ensure you have the level of income you will require when you reach retirement age.

What is the benefit of having a personal pension?

There are many benefits to paying into a personal pension. By investing in your own pension either via a Self-Invested Pension Plan or via a workplace pension you will be able to save for your future. In addition you will receive tax-relief on your pension contributions. Your financial advisor can offer you the right financial advice ensuring you start your own pension plan early enough to make sure your contributions remain affordable. By investing in your personal pension you will not need to rely solely on your State Pension when you retire. This should help you maintain the standard of living to which you have become accustomed.

I am entitled to a full State Pension is this sufficient?

For most people the State Pension will not be sufficient to maintain their standard of living. Pensioners who receive the full state pension will receive £185.15 a week for the 2022/2023 financial year. Although the government has introduced the ‘triple lock’ which means that the pension will increase by the highest of average weekly earnings, the rate of inflation or 2.5% there is no guarantee this will continue into the future. In addition there is a significant chance that the government will continue to increase the age from when you are able to receive the state pension. With this in mind it is important to start planning ahead and to get the right financial advice from your financial advisor so you can maintain your living standards when you reach retirement and are not solely reliant on the state pension.

When will I receive my State Pension?

The current State Pension age is 66 for both men and women. For people born after the 5th April 1960 there is a phased increase to age 67 and eventually the retirement date will increase to age 68. There are currently discussions in place in relation to further increasing the state pension age for anyone currently aged under 30.

Am I automatically entitled to State Pension?

If you reach State Pension age after 6th April 2016 you will need to have at least ten years National Insurance contributions to receive a proportionate State Pension. To receive a full State Pension you will need to have accrued 35 years National Insurance contributions.

How can I check my entitlement to State Pension?

It is fairly easy to check your State Pension forecast by visiting the gov.uk website. We would recommend you do this to ensure you are aware of your current situation in relation to your State Pension entitlement. You can also check the age you will begin receiving your State Pension, how much you will be entitled to and how to increase this amount should you need to.

How much can I invest in my pension during my lifetime?

Pensions are subject to a lifetime allowance. The lifetime allowance (LTA) for tax year 2022-23 is £1,073,100. The government have advised the LTA will remain frozen at this level until April 2026. Your financial advisor will offer you the right financial advice to ensure you remain within your lifetime allowance. Therefore making sure any savings you make always remain as tax efficient as possible. This will ensure you can maximise your pension contributions and provide you with as much income as possible during your retirement.

Maximising your pension fund:

Despite the ever-changing pensions landscape, pension planning and saving for your retirement are  vital as is making use of a qualified financial advisor. Getting the correct pension advise is vitally important as pensions are highly tax efficient as they offer tax relief at your marginal rate of income tax on your contributions.

Understanding Pension Annual Allowance’s:

Understanding the annual allowances available to you is essential. Dependent on your level of earning’s the annual amount you can invest into a pension can either increase or decrease. Here at PAB Wealth Management our financial advisor team will help you to understand your own personal allowance and your own position with regards to investing in your pension each year. By doing this we ensure the pension advice you receive is not just relevant for the current year but the advice provided remains relevant to your position in the future as well.

Carry Forward of Unused Reliefs:

Pension Advice is complicated many people are unaware that if you haven’t used your maximum allowances in previous years you may be able to contribute in excess of the current tax year’s Annual Allowance of £40,000, or your tapered annual allowance dependent on your circumstances. By speaking to a financial advisor you will receive the right advice regarding how much you should contribute to your pension. Carry Forward can work for you If you’ve contributed less than the Annual Allowance in the previous three tax years and were a member of a UK registered pension scheme during that time.

At PAB Wealth Management we believe  you should always have access to your financial advisor to ensure you are making the correct decisions in relation to your pension at all times.

Lifetime Allowance

Frequent changes in Lifetime Allowance mean pension advice is more important than ever. At PAB Wealth Management your financial advisor will help optimise your retirement planning and ensure you are taking full advantage of the latest Lifetime Allowance pension opportunities.

The levels of taxation and reliefs from taxation in relation to pensions can change at any time. The value of any tax reliefs depends on individual circumstances. It is therefore important not only to have a plan in place in relation your pension saving. But, also to ensure the plan is reviewed on a regular basis with your financial advisor.

Is my state pension included in my lifetime allowance?

No your State Pension is not included in the lifetime allowance. The lifetime allowance applies to any defined benefit schemes you belong to or any savings you have in defined contribution schemes.

What happens if I exceed my lifetime allowance?

If you exceed you lifetime allowance additional tax may be payable. This highlights why it is so important to work with your financial advisor ensuring your lifetime allowances are used in the correct manner. Exceeding these allowances can lead to a large tax payment being due. It is therefore vitally important that you receive the right financial advice from your financial advisor to ensure that you have the right financial plan in place.

When is my lifetime allowance assessed?

Your lifetime allowance is generally checked when:

• You start taking a defined benefit pension
• When you take an income or lump sum from a defined contribution pension
• If you transfer a pension overseas before age 75
• If you reach your 75th birthday and have a pension in drawdown or that you haven’t touched
• If you pass away before age 75 and have pensions you haven’t touched

Can I protect my lifetime allowance?

If you wish to avoid a lifetime charge it is important to continually assess your contributions and the current value of your pension fund. Your financial advisor will monitor the value of your pensions on your behalf. You might wish to apply for protection if your pension savings are expected to exceed the lifetime allowance as there are protections which can help you avoid a tax charge by giving you a higher lifetime allowance. Your financial advisor will be able to help you with this.

Nearing Retirement:

As you approach retirement, there will be multiple options for you to take and choices you will need to make. It is important your financial and investment planning is correct and we will ensure you are in regular contact with your financial advisor. Here at PAB Wealth Management our job is to help you to make the right decisions based on your own personal circumstances. We will provide you with a plan for the level of income you will require when you reach retirement and help to ensure that the funds you have saved last as long as you need them to.

Part of your plan may be to take a pension commencement lump sum. This is a tax free payment of up to 25% of the value of the pension benefits you have available. It may be that you want to use these funds to have a luxury holiday or purchase a new car. You should always look to take the advice of your financial advisor at this point to ensure this is the right thing for you to do. As by taking a pension commencement lump sum this will reduce the level of income which will be available to you during your retirement.

You may use your pension fund to purchase an annuity from a suitable annuity provider. Purchasing an annuity can provide you with a secure income for the remainder of your life – no matter how long you live. Your financial advisor will ensure that if this is the route you do choose you have the correct financial plan in place for your circumstances.

Alternatively you may plan to proceed with Flexi-access Drawdown this allows you to take an income directly from your retirement fund, rather than buying an annuity and to leave the funds invested. If you’re thinking about this option, you will need to take specialist advice from your financial advisor. 

Every individual’s circumstances are different when it comes to planning for your retirement. Your financial advisor will work with you to ensure you are comfortable with the financial advice provided and the financial plan we recommend to you.

What are Defined Contribution (DC) Pensions?

The Pension Freedom Reforms was implemented in April 2015, this changed retirement planning significantly and made the need to receive financial advice from a qualified financial advisor as important as eve.

Individuals now have full access to Defined Contribution (DC) pensions from the age of 55, with unrestricted income available. This is subject to paying Income Tax on any taxable withdrawals. However, it is important to note that just because you can access this income at this point it may not be the best thing for you in the long term as the more income you take the earlier in your life the less income will be available when you reach retirement. It is important to speak to your financial advisor to ensure you have the right financial and investment planning in place to make sure you do not run out of income in retirement.

It is still possible to take up to 25% of the pension fund as tax-free cash. Defined Contribution pensions can now be passed to anyone after death, not just a dependant. As your financial advisor we will ensure your wishes are carried out and make sure you have the right financial plan is in place.

Your financial advisor will work with you to decide the best financial plan for your individual circumstances. You may wish to proceed with the purchase of an annuity or your may wish to proceed with leaving your pension funds in Flexi-Access Drawdown. Your financial advisor will help you understand the consequences of the choices you make and how these may impact you in the future.

It is important to note the level of income from pension drawdown is not guaranteed. There is a very real chance you may need to reduce your drawdown income in the future, in particular if the performance of your investments is lower than expected, or you live to a greater age than originally anticipated when choosing your initial income level.

What is a Defined Benefit Pension?:

A Defined Benefit Pension is one where the income you will receive is based on how many years you have been a member of the employer’s scheme and the salary you received when you left the company or when you retire. These type of pensions can also be known as ‘final salary scheme’s’.

A defined benefit pension differs from defined contribution schemes as it is your employer’s responsibility to ensure there is sufficient money in the scheme to pay your pension. The benefit of a defined benefit pension is that you will always know the annual level of income you will receive on retirement.

If you have a defined benefit pension that’s worth over £30,000, you have to consult with a financial advisor before moving your pension out of the defined benefit scheme. If you are in an unfunded public sector pension scheme such as via the NHS you will not be able to move your pension.

You can take 25% of your pension as a tax-free lump sum when you reach age 55. Although it is important to note that this will reduce the retirement income you receive based on how much you withdraw. Making sure that you have the correct financial plan in place with your financial advisor is vital when looking to take any lump sum when you have a defined benefit pension in place.

Will Flexi-Access Drawdown or Annuity Purchase be better for me?

This will all depend on your own individual circumstances if you wish to receive a guaranteed monthly payment for the remainder of your life then an annuity purchase may be better for you. However, if you wish to leave your pension funds invested with the potential for them to continue to grow in your retirement you may wish to proceed with flexi-access drawdown. You will need to be aware of the risks If you do this though as it is important to note the level of income from drawdown is not guaranteed. Seeking professional advice from your financial advisor will help to ensure you have made the correct decision based on your personal circumstances.

At what age can I start taking my pension?

If you have a defined contribution pension you can generally take your pension income or pension commencement lump sum(or both) from age 55.

If you have a defined benefit pension you can generally start taking benefits from age 60 or 65 this will however be dependent on the scheme rules in relation to this. You may be able to receive income from a defined benefit pension from as early as age 55 dependent on the individual scheme.

It is important to note the earlier you take your pension benefits the lower your income in retirement is likely to be. Alternatively if you do not take pension benefits until you are older you may receive higher pension benefits. Speaking to your financial advisor in relation to your pension benefits will help to ensure you start taking your pension at the time is right for you and your circumstances.

Personal Pension Plans

Personal pension plans are often set up by the self-employed as they are not entitled to join a workplace pension. Alternatively some employees will look to invest in a personal pension to allow them to have more control over their investments than their workplace pension allows. By working with a financial advisor you can ensure the personal pension plan you set up is right for you. Anyone under the age of 75 can set up a personal pension plan.

Personal pensions are a type of defined contribution pension. Here at PAB Wealth Management your financial advisor will choose the right provider for you based on your individual circumstances. These plans offer a tax efficient way for you to save for your retirement. You will potentially receive tax relief on the contributions you make and when you come to retirement age you can take 25% of the pot on a tax free basis.

You do not have to be in employment to receive tax relief in relation to a personal pension and a personal pension plan can even be set up for your children or grandchildren.

The size of the pension pot on retirement will be entirely based on the contributions you have made and how the performance of the investments within the pension pot have performed. Your financial advisor will work with you to ensure that you are always aware of the size of your pension pot and to ensure the level of contributions you make are at the required level to ensure you have the income you require in retirement.

Pensions for the Employed

The most important step you can take when you are employed is to start working out how much you think you are going to need to be able to live comfortably when you retire. The earlier in your working life you speak to a financial advisor the easy the process should be for you as your contributions will need to be lower than they would have to be if you start your pension planning later in life.

Without effective retirement planning, the you could potentially outlive your savings. As a nation, we are healthier and living longer than at any other point in history, meaning it will no longer be unusual for people to spend nearly as long in retirement as they did in employment. This means moving forwards people will need to have more of a plan in place to make sure you have sufficient income in retirement.  

PAB Wealth Management has a range of plans to help provide for your retirement and your financial advisor will decide what is best for you based on your circumstances. No matter what stage of planning you are at. You must have flexibility in all aspects of your planning for your needs will change as your future earnings and career evolve.

If you have had several employers and therefore several workplace pensions it is important you review these to ensure that your savings are suitable for your needs. Potentially rolling all your pensions into one pot will help to ensure you are not paying more in provider fees than you need to be.

Our financial advisors offer a service that is personal to you, we deliver bespoke advice based on your own individual circumstances. Planning your retirement with us puts you in control, this ensures you can be confident about your future pension. Just because you are an employee it doesn’t mean that you shouldn’t take control of your pension and your future retirement plans. Speaking to a financial advisor will ensure you have the right financial plan to make the most of your pension contributions.

Pensions for the self-employed

Being self-employed means you cannot join occupational pension schemes, although you will receive the basic state pension and the Flat Rate State Pension, which came into effect on 6 April 2016 subject to a sufficient National Insurance record. Therefore if you are self-employed you need to make plans for contributing to an individual arrangement. This will help you to receive an income that gives you security in your retirement and makes sure you will have the right amount of income to maintain your lifestyle in retirement.

How much will you need? Everyone’s individual circumstances and needs are different. During your initial consultation with your financial advisor we will discuss your own personal needs and we will offer a recommendation of your needs for retirement.

The value of an investment with PAB Wealth management will be directly linked to the performance of the funds selected. The value of units can fall as well as rise, and you may not get back all of your original investment.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Tax treatment is dependent on individual circumstances and may be subject to change in future. Tax planning advice is not regulated by the Financial Conduct Authority.