Minimising potential taxes and duties on your death

Immediate access to your pension funds, allowing you to take out what you want, when you want it

As your wealth grows, it is inevitable that your estate becomes more complex. With over 400,000 people now expected to reach age 75 each year [1], more and more people could be faced with a 55 per cent tax charge on any money left in their pension fund when they die.

Income drawdown

When you’re not ready to convert your pension fund into retirement income

If you decide that you’re not ready to convert your pension fund into retirement income by buying a lifetime annuity, but you do need funds, you have a few options. These are often known as income drawdown options.

Gender neutrality

Women could increase their pension income
by over 20 per cent

The new 20 per cent uplift in capped income withdrawals, applicable from the 26 March this year, means that people could start to see the benefit of this uplift from the start of their new income year following this date.

Retirement income guarantee

Additional income protection

If you have a partner or other dependants, such as children, you might want to think about additional retirement income protection. With income protection, your named dependants could get some or all of your retirement income if you die, either as regular payments over a period of time, or as a one-off lump sum.

Different types of annuity

Valuable options that allow you to tailor the income you need

In the UK, there are basically two types of annuity:
• pension annuities (compulsory purchase)
• purchased life annuities (voluntary purchase)

Buying your annuity

An important one-off decision that has long-term consequences if you get it wrong

If you save through a private personal pension, when you approach retirement age you’ll have to decide what to do with the pension fund you have built up. If applicable to you, one option is to buy an annuity. It’s important to find an annuity that suits you and provides the best deal because, after your property, an annuity is probably the biggest purchase you will ever make.

Private personal pensions

To afford the lifestyle you want when you retire, you need to do something about it today

It may be tempting to say, “But retirement is a long way off”, yet it’s never too early to start investing in order to protect your future. To afford the lifestyle you want when you retire, you need to do something about it today. You now have a much greater choice when it comes to how and when to take retirement benefits from pensions since the pension simplification rules were introduced.

UK’s pension tax regime radical overhaul
On April 6, 2006 major changes were introduced to the structure of UK Pension schemes. These changes heralded probably the most radical overhaul of the UK’s Pension tax regime. The new simplified regime was largely a replacement of the past pension framework as opposed to the addition of another layer of legislation.

The most important thing is to plan your retirement funding strategy in advance. Anyone investing in a pension should remember that whilst pensions are extremely tax-efficient, it’s important to regularly review where your money is invested. This becomes more important as you begin to approach retirement when your investment aims may gradually change from growing the value of your pension fund to protecting it.

A private personal or stakeholder pension scheme could be right for you if:
• you want to save money for retirement in addition to your occupational workplace pension
• you’re self-employed, so don’t have access to an occupational workplace pension scheme
• you aren’t working but can afford to pay into a pension
• your employer offers it as an occupational
workplace pension

Personal and stakeholder pensions are ‘defined contribution’ private pensions that you arrange yourself. You contribute money into a pension fund which you use to buy a regular income when you retire. Sometimes employers set up group personal or stakeholder pensions for their employees.

Tax-efficient environment
Personal private pensions grow in a tax-efficient environment. You pay no capital gains tax on any growth and no further UK tax on any income the investments produce, and income from fixed-interest investments and deposits are received gross.

UK investors under age 75 can benefit from up to 50 per cent pension tax relief (2012/13 tax year) and 45 per cent (2013/14 tax year).

The higher your rate of tax, the more tax relief you could receive. Even non earners, including children, and those with an income under £3,600 can benefit, but can only contribute up to £3,600 this tax year.

Basic-rate tax relief of 20 per cent is added automatically. For instance, you contribute £8,000 to your pension and the government adds £2,000, to make a total investment of £10,000.

Higher-rate taxpayers can claim back up to a further 20 per cent through their tax return – another £2,000 in this example. So the cost of a £10,000 contribution is as little as £6,000.

Top-rate taxpayers can claim back up to a further 30 per cent (2012/13 tax year) through their tax return – another £3,000 in this example – so the cost of a £10,000 contribution is as little as £5,000, and 25 per cent (2013/14 tax year).

Annual allowance
The annual allowance (£50,000 in the 2012/13 to 2013/14 tax years) caps the maximum contributions that can be made by anyone (yourself or your employer, for instance) into all your pensions in a tax year. This limit does not apply to consolidating pensions, but includes the value of benefits built up in final salary schemes.
The table shows you the annual allowance for the tax years 2012/13 to 2013/14. Lifetime allowance
The lifetime allowance is the maximum amount of pension benefit you can build up over your life that is available for tax relief. If, when you take your pension benefits, these are worth more than the lifetime allowance there is a tax charge (the lifetime allowance charge) on the excess.

The lifetime allowance charge is a tax charge paid on any excess in the value of your pension benefits over the lifetime allowance limit. The rate depends on how this excess is paid to you. If the amount over the lifetime allowance is paid as:

• lump sum – the rate is 55 per cent
• taxable pension – the rate is 25 per cent

The table shows you the lifetime allowance for the tax years 2012/13 to 2013/14.

Input periods
When you contribute to a private personal pension, your contributions count towards the annual allowance of the tax year in which they are made. For instance, a contribution you make in March 2013 counts towards the 2012/13 tax year. This is not necessarily the case for other pensions. If you have contributed more than £50,000 across the last two tax years, a contribution you make could unknowingly take you over
the annual allowance.

Carry forward
If your total pension contributions for the tax year are more than the annual allowance you may still be able to claim tax relief as you can carry forward any unused allowance from the previous three years to the current tax year. You will only have to pay tax on any amount of pension contributions in excess of the total of the annual allowance for the tax year plus any unused annual allowance you carry forward. These carry forward rules are not being changed. The effect of this is
that for 2014/15 you will be able to carry forward up to
£50,000 unused allowances from each of the tax years
2011/12 through to 2013/14.

When you can receive your pension
The earliest age you can receive a private personal or stakeholder pension is usually 55, depending on your arrangements with the pension provider or pension trust. You don’t have to be retired from work.

The 3 basic steps when arranging your retirement income are:
• decide when you want to retire
• decide how you want to be paid
• shop around for the best deal on a regular payment (buying an ‘annuity’)

Deciding when to retire
Generally, the older you are when you take your pension the higher the payments because your life expectancy is shorter.

Deciding how you want to be paid
When you’re close to retirement you have to decide how you want your pension to be paid. This will depend on the arrangements you have with your pension provider but usually you’ll have the option to take up to 25 per cent of your pension fund money as a tax-free lump sum and the rest as regular payments. These could be monthly, quarterly, half-yearly or annually.

If all your pension funds total £18,000 or less, you can usually take the whole amount as a lump sum. You have to be at least 60 to do this. If your private personal pension or stakeholder pension is less than £2,000 you can usually take it as a cash payment, no matter how much you get from other pensions.

In some cases, when you’re under 75 and are expected to live less than a year, you can take your whole fund as a lump sum. You won’t have to pay tax on it unless your pension funds are worth more than the lifetime allowance.

State Pension

A regular payment from the government that you receive when you reach State Pension age

The basic State Pension is a regular payment from the government that you receive when you reach State Pension age. To receive it you must have paid or been credited with National Insurance contributions.
The most you can currently receive is £107.45 per week
(in 2012 to 2013).

The basic State Pension increases every year by whichever is the highest:
• earnings – the average percentage growth in wages
(in Great Britain)
• prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
• 2.5 per cent

Additional State Pension
The Additional State Pension is an extra amount of money that you could receive with your basic State Pension. It’s also based on your National Insurance contributions.

How much you receive depends on your earnings and whether you’ve claimed certain benefits. There is no fixed amount like the basic State Pension. You receive the Additional State Pension automatically, unless you’ve contracted out of it.

The Additional State Pension is paid with your basic State Pension. It normally increases every year by prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI). There is no fixed amount for the Additional State Pension.

How much you receive depends on:
• how many years of National Insurance contributions
you have
• your earnings
• whether you’ve contracted out of the scheme

Once you’ve reached State Pension age and are claiming the basic State Pension you’ll automatically receive any Additional State Pension you’re eligible for. There is no need to make a separate claim.
You will not receive the Additional State Pension if you’ve contracted out of it. If you only contracted out for certain periods, you’ll receive a reduced amount.

The Additional State Pension is made up of two schemes. You might have contributed to both, depending on how long you’ve been working.

The main difference between the two schemes is that since 2002 you also contribute to the Additional State Pension if you’re claiming certain benefits.

The State Second Pension since 2002
You contribute towards your Additional State
Pension through your National Insurance contributions when you’re:
• employed and earning over the lower earnings limit of £5,564 a year (in 2012 to 2013)
• looking after children under 12 and claiming Child Benefit
caring for a sick or disabled person more than 20 hours a week and claiming Carer’s Credit
• working as a registered foster carer and claiming
Carer’s Credit
• receiving certain other benefits due to illness or disability

You’re not eligible if you’re:
• employed and earning less than £5,564 per year
• self-employed
• unemployed
• in full-time training

Contracting out of the Additional State Pension
You can only contract out if your employer runs a contracted out pension scheme, so you’ll need to check this with them. If you’re a member of a contracted out occupational workplace pension you don’t contribute to the Additional State Pension for the time you belong to the scheme.

This means that when you retire you either don’t receive any Additional State Pension or it might be reduced, depending on how long you contracted out. You and your employer pay lower National Insurance contributions while you contract out. When you retire, you’ll get a pension from your employer’s scheme.

To contract out you must be:
• earning at least the lower earnings limit of £5,564 a year (in 2012 to 2013)
• paying Class 1 National Insurance (or treated as paying them – check with your employer)

Different rules apply if you’re a member of a salary-related pension scheme before 6 April 1997. These rights, known as the ‘Guaranteed Minimum Pension’, can’t be taken before age 65 (men) or 60 (women). The Guaranteed Minimum Pension will continue to be paid at these ages even when the State Pension age rises.

Saving for your retirement

The sooner you start saving for your retirement the more secure your future will be

Saving for your retirement may not seem important when you’re starting out. But the sooner you start saving for your retirement the more secure your future will be.

Having a private personal or occupational
workplace pension

It’s so important to invest for your retirement. Putting as much as you can into a pension provision as soon as you can gives you a much better chance of having the retirement you want.

When planning your retirement there are three main types of pension you need to consider. These are State Pensions, private personal pensions and occupational workplace pensions.

A new type of retiree

First post-war ‘baby boomers’ pass the old Default Retirement Age of 65

Securing your eventual financial independence in retirement requires making sure that your plans enable you to achieve this goal. Whatever provision you already have in place must be regularly updated as your circumstances and requirements change, and you need to ensure that you are still saving enough. But for many retirees’ the future looks less certain.

The UK is witnessing the march of a new type of retiree as the first post-war ‘baby boomers’ pass the old Default Retirement Age of 65. According to Aviva’s latest Real Retirement Report, more than one in three (39 per cent) over-55s are continuing to receive a wage and nearly half are intent on using their extra earnings to travel more when they finish full-time work.

Data from the latest census in 2011 showed there
were 754,800 people aged 64 in England and Wales, and almost 6.5 million people are turning 65 over the next decade compared with 5.2 million in the previous decade. The spike is due to the post-war birth rate soaring when the armed forces returned from the Second World War, with the new-born generation dubbed the ‘baby boomers’.

Pushing back the boundaries
Allied with improved health care, more people are remaining active as they approach retirement age, and the report shows how they are pushing back the boundaries at work and in their leisure time.  23 per cent of 65- to 74-year-olds were still wage earners in December 2012, compared with 18 per cent when the report first launched almost three years ago in February 2010.

Fuelling the rise of income and savings
With 55 per cent of 55- to 64-year-olds also still in employment, compared with 41 per cent in February 2010, this trend looks set to continue as more baby boomers pass the age of 65. It has already fuelled the rise of income and savings among over-55s during the last three years. The typical over-55 now has an income of £1,444 each month along with £14,544 in savings (December 2012), compared with a monthly income of £1,239 and savings of £11,590 in February 2010.

Enjoying the fruits of your labour
Despite 80 per cent being concerned by rising living costs over the next six months (December 2012), the UK’s over-55s are determined to enjoy the benefits of extending their working lives. Nearly half (44 per cent) plan to use their extra time in retirement to travel more, while 42 per cent are focused on spending more time in their gardens.

Socialising is high on the agenda for many over-55s in retirement, with 37 per cent planning to invest extra time in their families and 33 per cent keen to socialise more with friends.

The most common motivation
They also have philanthropic intent: two-thirds (66 per cent) of over-55s would be interested in carrying out charity work or volunteering once they have retired. The most common motivation is to give something back to the community (49 per cent) and to stay active by getting out of the house (48 per cent).

A new model for later life
It’s clear that the first baby boomers are setting out a new model for later life, and getting the most out of their improved physical health and the freedom to continue working for longer. Many people find that staying active in a job helps to keep them young at heart – with the bonus being that it boosts their earning and savings potential in the process.

The key to making the most of this opportunity is for people to start planning for their 60s and beyond well in advance. In this way, rather than accepting the old retirement stereotypes, you can have the freedom of choice about whether you continue to work or not, rather than feeling forced to carry on out of the demand to meet financial commitments.

Flexible for the future
Everyone enjoys using their wealth in different ways. For you, it might be the joy of travel, helping others through philanthropy, sharing your success with family and friends or your passion for collecting. It might be the simple freedom to do what you want, when you want. Whatever your priorities, we can help you use your wealth by ensuring it’s working for you now and is structured to be flexible for the future.