Pensions
At Cowling Rawnsley Financial Solutions Ltd we understand that pensions can be a complicated and bewildering subject. Our advisers offer a bespoke service to all clients and can tailor advice to your precise needs. There are two parts to retirement planning which are:
Accumulation
In the accumulation stage of retirement planning you have to ‘build up’ your pension pot.
The contributions can come from you personally, your employer or company, parents or family members or any other third party.
There are rules regarding maximum contributions into your pot which we can help you stay within and also there are ways to make your contributions tax efficient. For example a contribution for a director of a company can be beneficial for the company’s corporation tax position.
Our advisers can guide you as to the most cost-effective way to build up your pension pot.
Withdrawal
Once you have built up your pension pot and reached your retirement age (benefits can be withdrawn any time after age 55) you have decisions to make about how you want to take your benefits.
Currently the options are:-
Annuity :– this is where you buy an income for the rest of your life.
Income Drawdown:- this allows you to have more flexibility with your income withdrawals. However there is no security with your pot.
Third Way options:- there are a number of options which have unusual or beneficial features and mean your benefits may be subject to change within set parameters. These have become increasingly popular over the last five years.
The best option or mixture of options will be discussed with you and the pro’s and con’s for each will be explained, meaning we can help you make an informed decision on what is the best route for you to take.
Key Terms Explained
Lifetime Annuities
Annuities are special investments sold by insurance companies. An annuity is a way of converting a lump sum, usually the pension fund you build up during your working years, into an income during your retirement.
Conventional lifetime annuities
Level or increasing annuities linked to fixed-interest assets such as gilts and bonds.
Investment linked annuities; unit linked annuities
Your income in retirement will be linked directly to the value of an underlying fund of investments.
Generally, you can choose the types of fund, for example:
Medium-risk managed fund where a fund manager selects a broad range of different shares and other investments – spreading your money widely reduces risk.
Higher-risk fund where a fund manager selects shares and other investments in a particular country – Japan, say – or sector, such as smaller companies. Because your money is less widely spread, the risk is higher.
Tracker fund (usually medium risk), which tracks the performance of a particular stock market index. Usually, these have lower charges than managed funds.
The more risky the underlying fund you choose, the more your retirement income may vary – both up and down.
Investment linked annuities; with profit annuities
These link your income directly to the performance of the insurance companies with profit fund. Typically income is made up of two parts, which are a minimum starting income and bonuses. The amount of any bonuses depends on many factors, the most important of which is stock market performance. With a few annuities, a minimum bonus rate – for example, 3% a year – is guaranteed.
Impaired life annuities
Some companies offer annuities which pay you a higher than normal income if you have a health problem that threatens to reduce your lifespan. Some companies offer better rates to people who have followed certain occupations and to individuals living in certain parts of the country.
Spouses & dependents benefits
Both conventional and investment-linked annuities can be ‘single-life’ or ‘joint-life last survivor’. A single-life annuity pays out only during your own lifetime. A joint-life last survivor annuity pays out until the second person of a couple dies. On the first death, some annuities carry on paying the same amount to the survivor. With others, the amount is reduced – for example, by a third or a half. You usually choose at the outset how much income you want the survivor to get.