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Retirement and Pensions

Retirement and Pensions

A pension is the most common way of saving for retirement. It involves the individual making regular payments into a pension scheme to create a pension fund which is then invested. Individuals and companies currently enjoy tax relief on their contributions.
The vast majority of people saving into a pension scheme do so through their employer’s pension scheme. Each month the individual, the employer and HMRC contribute to the fund. The fund is invested in the hope that it will grow in value. This accumulated fund is then used to provide income in retirement.

Saving for retirement
It is important to start planning for retirement so you can be sure you are able to stay financial secure once you stop working. You will also want to ensure you have sufficient income in your retirement so you can continue to enjoy your current standard of living.  
Developing a retirement plan now will enable you to see what actions you need to take in order to prepare for financial security in the future. The sooner you begin planning the better. Leaving it until a few years before retirement may not give you enough time to accumulate the funds necessary for your retirement years.

Considering all your options at retirement
When approaching retirement it is important to consider all the available options. These include purchasing an annuity, income drawdown and ‘third way’ products.
An annuity is a financial product, usually purchased from an insurance company, that guarantees to pay you a fixed income for a period of time. These will be purchased using the money in an individual's pension pot at retirement. This is the most common approach at retirement.
Income drawdown involves leaving the pension pot invested, such as in shares or bonds and drawing a regular income from by selling the investments or collecting the dividends. This approach is riskier then taking an annuity as the value of the investments can fluctuate.  This also means that it can be more lucrative.   
A 'third way' product is an investment which offers a guaranteed investment return for a fixed period of time, such as fixed term annuities and investments with guaranteed returns. They attempt to offer the flexibility and investment growth of drawdown and the security of income of annuities. There are many third way products available, including investment linked annuities. It should be noted however that these products often cost more than traditional annuities.  
Expert advice should always be sought.

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