How to get good guidance about using your retirement

Everyone knows that the younger you are when you start paying into a pension, the more you’ll receive when it’s time to pay out on your retirement. Nevertheless, there are still many who delay making that start and a frightening number of people who believe that their entitlement to a basic State pension will be enough to see them comfortably through old age. While they might be right about the entitlement to a State pension, they are most unlikely to find that the State pension alone will ensure anything like a comfortable retirement. But if taking care of your own pension arrangements is to be an option, where do you go for the best pension advice?

Even a cursory look at the subject of pensions will tell you that it can become a pretty complicated topic, with a bewildering range of different products, to suit different ends and purposes. For example, you might be aware that your employer runs a pension scheme and, indeed, you believe that the employer contributes to your pension on your behalf. But is this an occupational pension scheme. If it is, do you know whether it is salary-related or whether it is a defined contribution or money purchase scheme?

Alternatively, is your employer offering a stakeholder pension scheme or running a group personal pension scheme? You have heard that it is possible to set up your own stakeholder pension. How would this differ from your having your own personal pension arrangement? Is one or the other – a stakeholder or a personal pension scheme – something you should be setting up for yourself?

These are all perfectly reasonable questions, but how on earth do you go about answering them? It’s very much a specialist subject and the ground rules seem to be changing all the time. You have might also have heard, for example, that the government is introducing changes requiring all employers to offer a pension in the future and to make contributions to the schemes set up. This can be the employer’s own scheme or the government’s new central scheme that is being established.

Yet further changes will affect the minimum age at which you can start drawing your pension benefits. Subject to the rules of your particular scheme, the minimum age is currently 50, but this will go up to age 55 by the year 2010 (though you will no longer need to stop working altogether to be able to draw the pension, provided continued employment is allowed by the rules of your particular scheme). To phase in the higher age level, pension fund managers have been given the period from April 2006 until April 2010 to raise the age limit. Clearly, you will need to know when it applies to you.

All in all, therefore, it is clear that questions about pensions can become quite complicated. They are further complicated by your need to know exactly how your own individual circumstances should affect your pension options and decisions. A pension is a long-term investment, which accumulates many thousands of pounds of your hard-earned cash – it’s important, therefore, that you are guided towards the right decisions.

Given the importance of getting it right, the sensible course of action is to consult an independent financial adviser about your existing and future pension options. This will ensure that your decisions are based on the best, professional and expert, independent pension advice. In the wake of the global financial crisis, governments all over the world are struggling to make ends meet. This has led to an international decrease in pension funds, which has led many to seek pension advice from financial professionals. However, you do not have to pay an expensive fee to learn how to improve one’s future pension returns – the ‘secrets’ are accessible, generally easy to implement, and best of all free. This article will cover four ways of increasing one’s pension upon retirement.

The first, and most obvious, is salary sacrifice. A ‘legitimate’ form of tax evasion, salary sacrifice involves the purchasing of items that attract a tax rebate or are tax-deductible. This effectively decreases one’s taxable salary while keeping constant one’s ‘true’ salary. As taxable salary is also used in pension calculations, salary sacrifice can have a double benefit: both immediately, via a decrease in tax payments, and in the long-term, as increased pension payments. Each government has a different list of tax-free and tax-rebated items, so it pays to do one’s homework (quite literally). Nonetheless, almost all governments offer subsidies on educational, infant-related or green products such as textbooks and solar panels.

Secondly, one should take advantage of tax-deductible contributions to pension. This is effectively free money: one both saves up pension money for the future and receives immediate tax relief. Contributions are the obvious follow-on from salary sacrifices, as the money immediately saved through salary sacrifices can be re-invested into contributions. However, most contributions have limits and are generally only effective (as opposed to banking or investing) within higher tax brackets.

Most employers offer staff pension schemes as a way to offer more to their employees. Employers pay a portion of the employee’s salary directly into a trust pension fund, which will mature upon retirement. This is because businesses are generally taxed on the wages they pay. Staff pension schemes, which are paid directly into employees’ pension funds, mitigate this tax. Thus, while employees essentially receive free money in the form of pension, the net effect upon their salary is nil. If you are currently employed or plan to be in the future, you should consult your employer concerning the above.

Finally, another obvious – yet often overlooked – principle is to visit your respective national websites. Specifically, retirement and pension government departments often publish their practices online. When browsing through this documentation, you may find something that specifically applies to your situation, or even clarifications on how to improve your financial status in general. Moreover, these sites often offer contact details and the like – useful if applying for a special consideration scheme.

As can be seen, increasing your pension is mostly a matter of legally utilizing and maximizing your available tax benefits. Nonetheless, living comfortably requires more than an above-average pension, and the best route to a wealthy retirement is still that of saving. Pension has been likened to an investment. While it is not necessary for financial success and independence, it can very effectively support a balanced portfolio. Not attempting to increase one’s pension is the equivalent of refusing ‘free’ money. You can also top up your income with other investments by saving the maximum amount on an Individual Savings Account, buying shares, saving in other investments such as bonds or even just by investing in property.

Overall the best thing for anyone to do is begin contributing to a pension as soon as possible and as long as you know not to rely on the state pension if you want to have an enjoyable retirement.

For more information on this topic speak to your financial adviser or someone who specifies in pension advice.