Recent publicity has made the public sceptical about the whole concept of Pensions. However, it is vital that everyone, whatever their age puts together a financial plan to ensure that they will have sufficient capital and income to support themselves in later life – let us call this retirement planning . This planning should start with a target income and the portfolio should include a variety of assets; ISAs, cash investments, savings, stock market portfolio, buy to let, business assets, possible inheritances and pension plans.
A pension plan should be regarded simply as an investment portfolio which cannot be touched until age 55 and happens to have certain special tax treatments. The pension plan does have an important part to play in retirement planning because of its one great attraction and that is tax relief. In most cases if you make a pension contribution, the Government will gross this up by 20% (and if you are a higher rate taxpayer you should receive a further 20% or 30% relief). So, even if you invest the contribution in a cash fund you already have a 20% head start.
At Nicholls Stevens we believe that clients need one asset allocation for their retirement planning and that their pension plans should fall within this. All the assets need to be regularly reviewed to make sure that the asset allocation is correct and to check that the performance is heading in the right direction to meet the retirement targets.
One of the great barriers to pension saving used to be that eventually the large fund which had been built up from hard earned savings had to be converted into an annuity and the capital value was lost on your death and could not be passed on to your beneficiaries. A change in legislation has now removed the need to buy the annuity and so a pension fund can remain invested in the stockmarket or similar for life and you can draw down an income specific to your requirements. At the end of your life whatever fund is left can pass to your beneficiaries.