When planning retirement you need to ask yourself a few questions:-

  • When do I want to retire?
  • Where will your regular income come from?
  • How much will it be?

Once you retire your regular expenses are generally reduced but you still need to have sufficient regular income to ensure you enjoy retirement!
The number of options and pension schemes available to you can be overwhelming. David Burnell Financial Services Ltd can help you through the maze of information and make a recommendation suitable for your circumstances. We are independent advisers offering high quality, independent financial advice.

Pension Types

There are six main types of Pension or Retirement income sources,

State Pensions

For most people there is a basic state pension, at £115.95 per week for a single person and £185.45 per week per couple (2015/16). Individual circumstances can affect the actual amounts received and this may not be sufficient for your needs.

State Pension Arrangements

State Earnings Related Pension Scheme (SERPS)
This is based on a combination of your national insurance contributions and how much you have earned during your employed life.

State Second Pension (S2P)
S2P replaced SERPS from the 6th April 2002. Any existing SERPS were protected. S2P provides a more generous second tier state pension for people on low or moderate earnings, certain careers or for people with a long-term illness or disability. The self-employed workers are not entitled to SERPS or S2P benefits at retirement.

Occupational Pensions

Occupational schemes are pensions set up by employers to provide income for their employees in retirement. It is run by a board of trustees but the employer is responsible for sponsoring the scheme. You may or may not have to contribute and it is not compulsory to join your employer's pension scheme however, it is usually advisable. The pension may be linked to inflation and increase annually. The scheme may also pay out a lump sum, which is currently tax-free, when you retire.

Occupational Pension Scheme Types

Salary Related Scheme
The retirement benefits you receive will depend upon the number of years you have worked for the company (pensionable service) and your final salary shortly before leaving that employer (pensionable salary). The scheme provides a guaranteed pension based on these factors and is sometimes referred to as a 'Defined Benefit scheme' (DBS). You can sometimes buy extra pension benefits by way of Additional Voluntary Contributions, added years or extra pension.

Money Purchase Scheme
Your contributions are invested to build up a pension fund and is sometimes referred to as a ‘Defined Contribution Scheme’ (DCS). Your retirement benefits depend on the contributions made by you and your employer and how well the investment funds perform.

Auto Enrolment
The government has introduced automatic enrolment in to workplace pensions. This means that your employer has to enrol eligible employees into a pension scheme. Both you and your employer must pay money in to scheme although you do have the option to opt out. If you haven't been enrolled in to a workplace scheme you should be by October 2018.

Personal Pensions

A personal pension policy is available to any UK resident who is aged under 75. It is a tax-efficient savings plan geared to giving you a tax-free lump sum and taxable income at retirement. This option is generally used by the self-employed or where an employer does not have a company scheme.
You contribute to the plan net of basic rate tax relief, the gross amount is invested and the fund builds up in the same way as the Money Purchase scheme.
You can take pension benefits at any time after age 55 in the form of a tax-free lump sum of up to 25% of the fund value. The remainder is taxable as income in the tax year it is taken. You can take advantage of alternative types of pension income. Whichever option is taken it is essential to receive qualified advice before making your decision.

Stakeholder Pensions

Stakeholder pensions are personal pension plans that must meet statutory requirements. For example, the annual charges may not exceed 1.50% p.a. of the fund value for the first 10 years of the policy and must reduce to 1.00% p.a. thereafter. There cannot be any transfer penalties or exit penalties.
There is no minimum level of contribution however, product providers sometimes refuse to accept premiums below £20. Otherwise the rules are the same as for personal pensions.
Again, qualified advice is essential before making your decision.

Types of Pension Funds

With Profits (not available for stakeholders)
Investment returns from a ‘with profits’ fund are in the form of a discretionary bonus. The value of the bonus relates to the performance of the underlying investment. Generally, the better the return, the better the bonus. Once annual bonus has been allocated, it becomes locked in and normally cannot be taken away. Because of this guarantee, most Companies keep their annual bonus relatively low and rely on terminal bonus (not guaranteed) to give the investor a good return.

Unit Linked
This investment offers the opportunity to invest directly in a wide range of assets such as UK and overseas equities, property and bonds.
Please be aware of the nature of the risk involved with this type of investment and that the value of your investment may go down as well as up. Past performance is not necessarily a guide to future returns and therefore it is possible that you may not get back the full amount invested.

Maximum Contributions Limit

The maximum amount of contributions on which a member can claim relief in any tax year is the greater of:

1:Basic contribution - currently £3,600 gross (irrespective of income)
2:The amount of relevant UK earnings that are chargeable to income tax for the year subject to a maximum of £40,000 (2015/16 tax year).

Annual allowance
The annual allowance is a limit on the contribution made by or in respect of someone to registered pension schemes for a tax year that will qualify for tax relief. If the person's total pension input amount is more than the annual allowance, they will normally face an annual allowance tax charge.
From 6 April 2014 the annual allowance for tax relief on pension contributions to a registered pension scheme was reduced to £40,000.  This includes contributions made by anyone else into your pension such as your employer. If your pension savings exceed this amount, you will have to pay a tax charge and give details of this on a Self-Assessment tax return.
The new rules allow you to carry forward any unused allowance from the three previous tax years to offset this charge.
Tax years 2006/07 to 2010/11
The annual allowance was much higher when first introduced. Historic figures are as follows:

  • 2010/11: £255,000
  • 2009/10: £245,000
  • 2008/09: £235,000
  • 2007/08: £225,000
  • 2006/07: £215,000

For tax years 2009/10 and 2010/11, there were also special annual allowance rules which applied to people with relevant income of £130,000 a year or more.

Lifetime Allowance

  • 2006/07 - £1.50 million
  • 2007/08 - £1.60 million
  • 2008/09 - £1.65 million
  • 2009/10 - £1.75 million
  • 2010/11 - £1.80 million
  • 2011/12 - £1.80 million
  • 2012/13 - £1.50 million
  • 2013/14 - £1.50 million
  • 2014/15 - £1.25 million
  • 2015/16 - £1.00 million

This information was correct at the time of printing but may be liable to change.
Lifetime Allowance Charge (on excess) if benefits paid as a lump sum: 55%. If benefits are paid as a taxable pension: 25% with subsequent benefit taxed at individual's marginal rate.

Benefit age

After 5th April 2011, pension rules changed so that benefits do not have to be taken from a registered pension scheme by age 75 - they can just be left in the scheme as unused funds until the member needs them. Where scheme rules allow, this gives members the flexibility to delay taking their pension or tax-free lump sum until after age 75 - potentially even continuing a phased retirement strategy into their 80s or beyond. However, the benefits still have to be tested against the lifetime allowance by age 75 (as a benefit crystallisation event). So, even though the member may not be taking anything from their fund, if those unused funds are greater than the remaining lifetime allowance, a lifetime allowance tax charge will have to be paid. Any lifetime allowance charge incurred at age 75 would be at the rate of 25%, with the residual excess fund retained in the scheme to provide taxable pension income.

This also means that lump sum death benefits paid after age 75, even from unused funds, will be subject to the 55% tax charge - unless it's a charity lump sum death benefit (which can be paid tax-free).

Investing in unit-linked funds offers a lower security than does a with-profit fund, but there is the opportunity to achieve higher returns over the longer term.
You should not proceed to purchase any product without seeking independent financial advice.

Please be aware of the nature of the risk involved with this type of investment and that the value of your investment may go down as well as up.  Past performance is not necessarily a guide to future returns and therefore it is possible that you may not get back the full amount invested.

I.      A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
II.      Auto Enrolment and Tax planning advice are not regulated by the Financial Conduct Authority.

Contact us for Pension Advice or for more Information...

All contact is treated in the strictest of confidence.
Tel: 0115 945 5199 between 8.30am and 5.30pm Monday to Friday - Email:

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