Pensions

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Pensions can be broken down broadly into two separate categories

• Accumulation Period
• Drawdown Period
  

Accumulation Period

This is the term given to the period where clients make pension contributions in order to accumulate a capital sum which is then used to provide income at retirement. This can be done through regular contributions, lump sum contributions or a combination of both which attract tax relief at the client’s marginal rate subject to certain limits. There are many pension products available to facilitate this such as:

• Occupational Pensions (Final Salary or Money Purchase) average lifetime earnings contracts also introduced recently
• Group Personal Pensions (Money Purchase mainly)
• Personal Pensions (Money purchase)
• Stakeholder Pensions (Simplified Money Purchase Contract with capped charges)
• Specialist Pensions (SIPP FURB etc.) for the more sophisticated investor
  

Drawdown Period

This is the term given to the period when clients have accumulated a pension fund and are starting to look at their retirement options. There are many products available in order to provide retirement income from the accumulated fund.  The following is a small sample:

• Level Annuity
• Indexed Annuity
• Enhanced/ Health Impaired Annuity
• Temporary Annuity
• Conventional Annuity
• With Profit Annuity
• Income Drawdown
• Phased Drawdown
• Flexible Drawdown
• Capped Drawdown
• Each option will have some benefits attached as well as potential drawbacks with retirement income received likely to be influenced by certain factors such as:

Client’s Age

• Health
• Geographical area of residence
• Single or joint life
• Provider own Annuity
• Open Market Option
• Additional benefits
• Annuity rates
• Inflation
• Type of Annuity
• Size of fund
• Attitude to risk
• Requirement for tax free cash
• Reserving benefits for potential dependents
  

Pensions & Retirement Options

Pensions are generally regarded as a tax-efficient way to save for retirement. Occupational final salary pension schemes offer a defined benefit relative to salary and length of employment, group personal pension schemes on the other hand are a set of individual personal pensions normally offered to employees where both employer & employees make regular contributions, the fund size being totally dependent on growth plus level of contributions. Stakeholder contracts are also available as an incentive for people to save for retirement featuring availability of low contribution levels and simplified set of funds with capped charges

Specialist pension contracts such as SIPPs and SSAS are also available for the more sophisticated investor who wishes to maximise investment choice out with the normal fund range and accepts the higher charges associated with this type of contract. National Employment Savings Trusts (NEST) were also launched recently with auto-enrolment aimed mainly at employers who do not offer a pension scheme. They are being rolled out gradually over the next five years starting off with larger employers first.

For instance whilst an annuity purchase can give certainty of income, client’s have no control over investment choice, fund will eventually die with client and current climate of (relatively) high inflation low interest rates mean that currently annuity rates are at their lowest level ever. A drawdown, in the right circumstances, can provide a rising income, continued capital growth and preservation of fund allowing for more flexibility of choice. However, this option is only feasible for larger funds, would not be deemed appropriate for clients with a cautious attitude to risk due to the risk of their fund being eroded due to market conditions or even exhausted whilst the client is still alive.

Clearly this is a very complex area requiring diligence, great care and consideration. Other factors need to be accounted for such as income requirements, the existence of other savings, provision of the basic state pension as well as client’s tax position. In essence a final solution may require the facilitating of multiple products in the short term to provide flexibility and a smooth passage to the final stated aim.

Information regards taxation levels and basis of reliefs are dependent on current legislation, individual circumstances are not guaranteed and may be subject to change

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These are a sample of some of the companies available: