You will likely have asked yourself “how much do I need to retire?” or “how much do I need to save in order to retire at 60?”. A question which is as old as the hills but the challenges surrounding retirement planning seem to continuously want to change.

You could purchase a single life Lifetime Annuity. However, by doing this you would become ‘locked in’ and there is the danger that this arrangement might not be suitable for you many years from now. Plus, annuity rates have been on the decline for more than a decade and so your starting amount could be less than the income from Income Drawdown.

So, what do you do in this environment? How can you make sure your pension lasts your lifetime and, therefore, the standard of living for your future self? Now that we are living on average to age to 84 for men and 87 for women (from age 60), and 1 in 4 chance to live to 94 (Source: ONS Data and analysis from Census 2021), it’s paramount that we have a suitable arrangement throughout our retirement.

The key is to invest in assets which maintain your purchasing power through retirement and mitigate the risk that inflation poses (see our ‘Investment Advice’ page for tips on how to do this).  When it comes to maintaining your purchasing power through retirement, you can do this by holding a diversified portfolio of asset classes in either your workplace pension or by investing in a private pension scheme. Some private pensions even have the facility to receive ongoing advice to help you reach your key retirement objectives.

Pension Advice

What is someone referring to when they say they have received pension advice?

People tend to think of a different image when they hear a friend or relative say this. So to give a stronger indication of what they might mean, we can highlight here the sort of questions they are likely to have asked their financial adviser:

1. “how much should I save for retirement?”
2. “how much can I pay into a pension and get tax relief?”
3. “when can I take 25% tax free cash from my pension?”
4. “what happens to my pension when I die?”

These are the most popular questions a financial adviser is asked. In answering them, however, some questions are more complex than others.

The first question depends on your current pension provision, the amount you are willing to additionally save from your income and the time you have left until the age you would ideally like to retire. A financial adviser can help you answer these types of questions through cashflow-modelling.

The second question depends on a number factors, including your earnings in the tax year, your marginal rate of income tax and contributions made already this tax year as well as contributions made in the previous three tax years.  Every year you have a pension annual allowance of £60,000. The initial entitlement to tax relief on a member contribution is restricted to the lower of [a] 100% of relevant UK earnings and [b] £3,600. Relevant UK earnings are the amount chargeable to UK income tax.

Question three depends on your age, the value of your pension and whether you have any protection against the previous Lifetime Allowance, as the rules changed again in the 2023 Budget.  

The answer to the last question? Here’s what happens to your pension after you die:

• First, it depends on your age at the date of death
• Death pre-75, your pension fund can provide tax free income or capital for nominated beneficiaries (e.g. spouse or children), bypassing inheritance tax in the process as a pension is not usually included in the value of the deceased's estate.
• Surplus funds could be allocated to pay any outstanding debts (such as a mortgage)
• Death post-75, your pension can be paid as a lump sum or income but will be taxed at 55% or the recipients highest marginal rate respectively.

So as you can see, there’s a great deal of legislation to consider when either contributing to, or taking benefits from, your pension. Making the right decisions are important and so advice from a financial adviser will ensure you make the correct ones.

Private Pensions with Ongoing Advice

Private pensions with ongoing advice are well suited for people who want to consolidate multiple pension pots. It also tends to be that private pensions enable business owners and senior employees to be tax-efficient with their company profits or earned income.

For instance, company owners can reduce their corporation tax by making employer pension contributions to a private pension, as employer pension contributions are deemed a business expense by HMRC (e.g. a maximum of £60,000 could go into a pension as an employer pension contribution). Since owner managers will often structure their income with less salary and more dividends, provided the employer contribution meets the ‘wholly and exclusively’ requirements in the case of a trade or profession, the contribution can be justified as an ‘expense of management’ for a company.

Business owners or employees have unused pension allowance for this tax year, as well as periods during the previous three tax years. Through Carry Forward cash savings could be contributed to a private pension and use up all of the remaining allowance (up to £180,000). 

It's through ongoing advice that these sorts of benefits can be seized upon.

Are you and your family sure of how to mitigate inheritance tax and to keep wealth within the family? If you're not sure, you can make an enquiry via our website for a no obligation consultation.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount initially invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.