Pensions under the new rules

Pensions under the new rules

Much of the recent media coverage surrounding the reform of pension legislation has highlighted the needs of those due to retire in April 2015. However, the revised rules also create new scenarios for those whose retirement is some way off. As life expectancy rises, many of us can look forward to around 45 years in employment followed by 30 years of retirement, possibly living into our nineties.

THE NEW WORLD OF WORK

The recession changed a number of aspects of our working lives. More companies abandoned their defined benefit pension schemes in favour of defined contribution arrangements. People move jobs more frequently, often having a ‘portfolio’ career which can include time as an employee and time spent being self-employed.

Against this background, it makes good sense at all stages of your working life to keep an eye on your pension arrangements, especially if you intend to retire before State Pension age.

You need to be in a position to answer the following questions:

  • When do I want to retire?
  • How much will I need in income & savings to fund my lifestyle in retirement?
  • Are my plans on track? Am I currently saving enough?

Starting early can have a real impact on the ultimate size of your pension fund.

Take the example of

– Someone saving £100 a month for 40 years (25 until 65)

– Whilst they would put away the same amount into their pension pot as someone starting 20 years later, by putting in £200 a month, the early starter stands to accumulate a much bigger fund.

– Based on (a projected but not guaranteed) 6% investment growth throughout, the early starter would have a fund of around £190,000 whilst the later starter would have built up around £90,000.

Pensions currently offer generous tax breaks to encourage us all to provide adequately for retirement. If you are a basic-rate taxpayer making a pension contribution, every £100 you pay in will in effect only cost you £80 once income tax relief has been applied. If you are a higher-rate taxpayer, every £100 contributed would cost just £60.

If you haven’t looked at your pension plan recently, then arrange to see us at Logic Wealth Planning for a review.