1

A pension may be the most tax-efficient investment you have

For most people, a pension should be the primary way you fund your retirement, because of the tax benefits. Thanks to tax relief, a contribution of £1,000 to your pension could cost you as little as £550 – £800.

Modern pension schemes are very flexible and offer a wide range of investment options. You can therefore be as cautious or adventurous as you wish, to match your risk profile.

A pension is a long-term investment. Making the right decisions throughout your life and taking advantage of market opportunities can lead to superior performance that adds significant value to your pension fund and therefore to your income in retirement.

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Why you need a retirement plan

Many people have a pension plan, but only a few have a plan for their pension! Here are just a few of the factors to consider:

What age you want to retire
How long you are likely to live
How much investment growth you need
How much you need to pay in
How much you can afford to pay in
Your state pension and any other pensions
Your assets and liabilities

When planning for your future, it is important to understand these factors, and review them regularly.

Your pension funds should grow over time – but you need to know whether that is just because of the contributions you’ve made, or whether it’s due to the performance of your investments.

You need to understand the reasons for your current investment selection, how risky they are, how much your fund ‘should’ be growing compared to the market, and whether you are getting good value for money.

3

How your pension benefits your family

The benefits to your family differ according to which type of pension you have, such as:

Personal pension
Defined contribution work-based pension
Defined benefit work-based pension

The actual benefits will depend on the terms of your particular pension contract. It might include a cash lump sum that is paid out to your chosen heirs (which might not be tax-efficient), or a fixed pension paid to your surviving spouse.

If you have a flexible pension scheme, the money could pass to your heirs with the tax benefits remaining intact throughout future generations. Alternatively, they could withdraw the money without waiting until the standard pension access age of 55.

Generally, pension funds are excluded from your estate, so are not subject to inheritance tax.

If your scheme does not include flexible death benefits, you could change to a scheme that does, and so reduce the tax your heirs will have to pay.

4

Your pension withdrawal options

If you have a flexible pension, or transfer to one, you can withdraw 25% tax-free. The rest is taxed at your marginal rate, so it is not usually wise to take the whole lot as a lump sum.

Other options include taking a traditional annuity, investment-linked product with guarantees, or leaving the money fully invested and drawing it down as required.

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We can help!

With our thorough knowledge of pensions, investments and tax, we will help develop your retirement plan, and find the best pension scheme and investment funds for you. Our ongoing service ensures your plan will remain optimised through the years.

To arrange your initial appointment, please contact us on 020 8891 0711 or hello@globeifa.co.uk