A question that is frequently asked by Menzies Wealth Management when talking to clients, is how do they plan on funding income for perhaps thirty years or longer when they decide to stop working?
More often than not the subject of pensions is then discussed, how complicated they are and the lack of trust they have in the companies that provide pension plans. This perception has arisen partly from articles in the press following a relatively small number of well publicised company collapses.
Some clients say that they will rely on their state pension, currently less than £100 per week for the basic state pension. Not only in the UK but across the western world we have an ageing population who expect historic pension promises to be honoured from a proportionately contracting work force. Historically, UK governments have attempted to deal with this problem in a number of ways, the most recent having been to announce an increase in the state pension age beyond 65.
Whatever our clients may feel about pensions, it is very important that they all have a retirement income funding strategy which may or may not include pension plans. Relying on state pension payments alone will normally result in a significant reduction in living standards in retirement.
Examples of alternative retirement income funding strategies include:
- Inheritances - not recommended due to the impact the cost of long term care can have on an elderly relative’s estate
- House downsizing
- Selling a business
- Savings
The government does encourage individuals to establish pension policies with tax relief available in respect of pension contributions and tax free investment for as long as the funds remain invested.
There are a number of different types of pension plans that our clients may also consider:
- Personal Pension
- Self Invested Personal Pension (SIPP)
- Group Personal Pension
- Small Self Administered Scheme (SSAS)
- Money Purchase Pension Scheme
- Final Salary or Defined Benefit Pension Scheme