Planning Your Pension For The Long Term

Cliff RichardCliff Richard will obviously have no money concerns when he finally stops treading the boards and retires, but what about the rest of us?

Well, with so many things crowding modern life, it’s easy to ignore just how quickly the future will arrive, and along with it the day you stop working. Plus, with the pressure on finances pressing on many fronts for so many people it’s easy to put off until tomorrow what you really should be addressing today – putting in place a pension investment blueprint that will work to help build a solid income for when you retire.

Pensions are complex instruments, but that shouldn’t stop anyone making sure they have one in place with wise financial planning, the right asset choices and wisest of all, by starting immediately.

In the past, saving for retirement simply meant keep drip feeding money into your pension, without really having much input as to when or how the pension was taken.

Reviewing your retirement planning

However today, not only must you carefully consider where you actually invest your pension money and how you are going to use your pension, but if you should also review other forms of retirement savings if you have them. Probably the single most important decision you can make to help you realise your long-term goals is the one most easily missed, that of reviewing your retirement planning as early as possible and making a plan that you will stick to.

Different investment choices produce different results. It’s essential that you review all your retirement investments to make sure they are heading in the right direction. If your circumstances change, some investments may no longer be appropriate. It’s important to get these things right as you will be relying on the provisions you make now to generate income after you retire.

Factors that will determine how your blueprint will be set up


When building or reviewing your pension portfolio there are a number of factors that will determine your strategy, including the level of risk you are willing to take.

This is likely to change throughout your life, which means your investment strategy will also need to change. Receiving professional financial advice plays a vital role in helping to make sure that your pension holdings match your risk profile and your investment goals.

Typically, people in the early years of the term of their pension may feel they have time to take more risks with their investments to increase the potential for higher returns. As they approach retirement and the duration of the investment is shorter, they may prefer more predictability to start to plan for their future after work.

Alternatively, if they have reached their pension age and are still investing part of their fund while drawing benefits, they may prefer to keep an element of greater risk in return for higher potential growth.

Don’t miss your “Golden Decade” in your Forties

Your 40s is ‘the golden decade’ when it comes to retirement planning. This is when you should be putting as much as possible into your pension to give your contributions time to grow.

In your 50s you may want to start making decisions about your retirement. If you are going to convert all of your retirement funds into income the moment you retire, you may wish to start reducing risk now. If you expect to keep it mainly invested, you may wish to keep a good weighting in investments based on shares. After all, with the growing trend towards taking work in retirement, many people may feel they can afford to keep their pension invested for longer while drawing an income.

Delaying the start of your retirement provision will have an obvious impact on the potential growth of your pension. Not only will the time period for growth potential be reduced, but you could also be passing up the opportunity for valuable tax relief.
Streamlined pension regime

Pensions have always provided a highly tax-efficient environment for long-term retirement investments. However, in April 2006, a streamlined pension regime introduced a number of extra benefits, including the potential to contribute larger sums into your pension fund when the timing is right for you.

Since the rules were simplified, pensions have become easier to navigate. Whether you have occupational pensions, personal pensions or both, you now have one overall annual and one Lifetime Allowance for pension savings.

You can save as much as you like into any number and type of registered pension schemes and receive tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year towards a pension from which you benefit from tax relief is subject to the ‘Annual Allowance’.

The Annual Allowance for the tax year 2013/14 is £50,000.

Excess taxed on income

The Lifetime Allowance, the amount you can save in total in all your pensions, is for most people £1.5 million in the current tax year 2013/14. It applies to all the pensions you have, excluding your State Pension. In 2014/15 the Lifetime Allowance will reduce to £1.25 million. If you save more than this, you will be taxed on income from the excess at an effective rate of 55 per cent if taken as a cash sum, and 25 per cent if taken as pension benefits. These charges are on top of any income tax due on the pension payments.

Consolidating funds

Another feature of pensions is that you can consolidate payments from one UK registered pension scheme to another. This could be either to access different benefit options or simply to consolidate your funds in one place. It is important to note that there are costs involved, and obtaining professional financial advice is essential to ensure that you take the appropriate course of action for your specific situation.

If you have more than one pension plan in your name, there could be a number of advantages to consolidating all your plans into one. Having one pension can make it much easier for you to keep track of funds, monitor performance and change strategy if necessary. Consolidation may also cut down on paperwork and could make estate planning simpler.

Again, it’s possible that consolidating pension funds may not be beneficial for your particular circumstances. You should always receive professional financial advice before deciding if it is the right course of action for you.

After you have retired

The array of post-retirement options is vast and will need to be considered carefully. The best option for you will depend on factors such as the size of your fund, your ongoing involvement, the risk you are willing to take and the level of benefit flexibility you want.

Annuities have long been the mainstay of turning your retirement pot into income. When it comes to buying a pension annuity you can choose from any provider in the market, with the option of inflation-proofing it or buying a guarantee so that it continues to pay out for a set period of time. You might also want an income to continue for your spouse after your death. All these options will reduce the amount you initially receive.

You have other options besides buying an annuity, such as using a drawdown facility and leaving your pension invested but receiving an income from the fund. If you do this, you can still take your 25 per cent tax-free lump sum out of your pension.

There are many choices to make during the pre- and post-retirement years. However, these choices are some of the most important you will ever make, so careful consideration is essential in order to safeguard your financial future and give you the retirement you are dreaming of. We can provide professional help and advice on retirement planning, so please contact us to arrange a meeting.

Some occupational schemes may not be able to offer you all the options referred to within this article. While annuities are generally guaranteed to be paid, remaining invested and using drawdown means that the value of your pension, and the income from it, can go down as well as up.

(Therefore there is a chance that you may not get back as much as you would by using an annuity. Drawdown is a high-risk option which is not suitable for everyone. If the market moves against you, capital and income will fall. High withdrawals will also deplete the fund, leaving you short on income later in retirement. The value of investments and the income from them can go down as well as up. You may not get back as much as you invested.)

There we are then. As you can see, putting a pension investment blue print together can have quite a few moving parts. If you need help doing so please call me free from a landline on 0800 321 3508 or direct to my mobile on 07803 508 187.

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Investment and Tax

The value of pension and investments and the income they produce can fall as well as rise. You may get back less than you invested.

The Financial Conduct Authority does not regulate advice on tax planning.

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Dates and Times

NOTE: I have been writing articles here since 2007 so please take note the date of the article, because obviously, things like laws or tax allowances etc may have changed since then.

I do try my best to keep up to date, but I'm only an humble advisor and there are hundreds of my financial articles here! Please call or email if you need to double check something. I'll gladly help.