1. The better pension schemes based on years of employment and salary (called Final Salary schemes) are disappearing.
2. The State Pension Age is being increased for both men and women (Note: If you want to know how long you will have to wait for your State Pension, go on to the State Pension Age Calculator at www.direct.gov.uk.)
3. Existing Money Purchase pensions (These represent the majority of private pensions and consist of a pool of money that is built up through contribution and investment growth. The resulting fund is eventually used to purchase an income – hence Money Purchase.) rely on people putting a significant contribution into their pensions – which most people are unwilling to do.
4. The State Pension is insufficient on its own to provide an adequate income in retirement.

Now let us look at what the ideal pension arrangements would be:

1. People with adequate income in their later years able to choose whether or not to work.
2. People knowing enough about pensions to be able to make sensible decisions about their long range planning, or have a source of advice they can rely on.
3. A substantial State Pension for those who pay their National Insurance Contributions over a normal working life.

1. Those lucky enough to be in Final Salary schemes from either past or present employers should preserve these.
2. We should take responsibility for our own futures by getting to know enough about pensions and alternative sources of income so as to be able to sensibly plan for tomorrow as well as today. An immediate action you can do is to work out how much income you would need to survive if you were retiring today. You can then get help to work out how much you need to save in order to achieve that level of income, while preserving a good standard of living in the present.
3. Get independent financial advice on all your options when the time comes to take some or all of your pension benefits.

Current pension options and regulations in 2011/2012:

1. You can contribute into a pension an amount equivalent to 100% of your earnings up to a maximum of £50,000 in any one year. If you want to contribute more, then you are allowed to bring forward any unused amounts of potential contribution from the previous 2 years. For each £1.00 you contribute, the Government adds 25p if you are a Basic Rate Taxpayer. If you are earning over £42,575, you end up getting 50p benefit for each £1.00 you contribute. Those earning over £150,000 get still more tax relief.
2. From 2012 the maximum total pension you are allowed to have had tax relief on in your working life is being reduced from £1.8 million this year to £1.5 million from 2012 onwards.
3. You no longer have to purchase an annuity (an income for life) by age 75. There is now no age limit.
4. From age 55 onwards you can take up to 25% of your pension savings as Tax-Free Cash and take your other pension benefits. You have a number of options for taking the other benefits such as the following:

1. You can take your Tax Free Cash and use the remainder to buy a guaranteed lifetime annuity (an income guaranteed for life).
2. You can take your Tax Free Cash and leave the remainder invested and draw an income from the invested funds – up to a maximum set by the Government. This is called a Capped Income Drawdown.
3. You can take your Tax Free Cash and leave the remainder invested and take out as much as you want as long as you have a guaranteed pension income of at least £20,000. This is called a Flexible Drawdown.
4. You can take your Tax Free Cash and use the remainder to buy a Temporary Annuity which gives you an income usually for 5 years and then you have the option to choose again how to use the remaining pension fund.

            5. If you die and have not taken any pension benefits from your pensions, the value of the pensionbecomes part of your estate and is shared out according to your Will.

            6. If you die and have started taking pension benefits, your estate will receive 45% of what is left in the fund with the Government taking 55%.

             7. From 2012 people who contracted out of SERPS (State Earnings Related Pension Scheme now called the State Second Pension) many years ago will no longer receive an annual amount paid into their pension by the Government. Instead they will be credited with a year of contribution to the State Second Pension (this will increase the total State Pension one receives at State Retirement Age).

Personal Tax Allowances (the amount you can earn before you pay tax)

                                                                                                 2010/11                                  2011/12

Up to age 65                                                                            £6,475                                     £7,475

65 to 75                                                                                   £9,490                                      £9,940

75 plus                                                                                     £9,640                                      £10,090

Income Tax at 20%                                                                £37,400                                     £35,000

(amount over the personal allowance)

Income Tax at 40%                                                                over £37,400                            over £35,000

Income Tax at 50%                                                                over £150,000                          over £150,000

Basic State Pension                                                                 £97.65 per week                       £102.15 per week

ISA Allowance                                                                        £10,200                                     £10,680

(of which 50% can be in cash)

Purchase price up to £125,000                                                 nil                                             nil

(also nil for up to £250,000 for first time buyers who complete by 25/3/2012)

up to £250,000                                                                         1%                                            1%

up to £500,000                                                                         3%                                            3%

up to £1 million                                                                       4%                                            4%

Over £1 million                                                                        4%                                            5%

Inheritance Tax (nil rate band)                                               £325,000                                   £325,000

Capital Gains Tax Allowance                                                 £10,100                                     £10,600

The residential property market is still relatively quiet. Lenders are being forced to bring out new offers to tempt borrowers to move or remortgage. Our general advice for those on their lenders’ standard variable rate is to remortgage to a fixed rate for between 3 and 5 years. There is generally money to be saved and peace of mind to be gained. We will be happy to review your options for you. Note: those who still have interest-only mortgages should take immediate advice to ensure that they either move over to a repayment type of mortgage or have sufficient resources to pay the mortgage when it falls due.

Once you have achieved the most important financial Happiness Factor (having more money coming in that you are spending), it is worth looking at the Peace of Mind points – life assurance, critical illness insurance, general insurances (house, contents, car), and a Will. Peace of Mind may be cheaper than you think and you may be able to save money by finding cheaper solutions. Give us a ring and we can go over these points with you.

Tom Shuster and Trevor Tupholme