Apathy and a failing system is costing pension savers dear, with retirees set to lose £14m this year on not hunting out the best annuity. If this inertia continues, it will cost Britain’s pensioners a total income of £3.3bn over the next 20 years, according to the study by Oxford Economics, carried out on behalf of trade body, the Pension Income Choice Association (PICA).
The end of the 2009/10 tax year is rapidly approaching and now is the perfect time to consider your Individual Savings Account (ISA) options. These tax-efficient wrappers are a popular and simple way to save, as you don’t pay any personal income tax or capital gains tax on any profit you may make.
Looking ahead to this new decade, what areas could be seen as opportunities for investors?
Emerging markets
It is estimated that the world’s population is set to increase by 50 per cent in the next 40 years, mostly from emerging markets, which include the ‘BRIC’ countries of Brazil, Russia, India and China.
People who die without a valid will, or intestate, leave costs and complications to their loved ones and often gift thousands of pounds to the State in what may be avoidable Inheritance Tax (IHT).
There are a number of different reasons why you may wish to consider transferring your pension schemes, whether this is the result of a change of employment, poor investment performance, high charges and issues over the security of the pension scheme, or a need to improve flexibility.
You might well have several different types of pension. The gold standard is the final-salary scheme, which pays a pension based on your salary when you leave your job and on years of service. Your past employer might try to encourage you to move your pension away by boosting your fund with an ‘enhanced’ transfer value and even a cash lump sum.
A Self-Invested Personal Pension Scheme (SIPP) provides you with the option of choosing when, where and how you invest the assets of your pension fund. Any contributions that you make to a SIPP will receive tax relief of between 20 per cent and 40 per cent depending on what the current tax rates are and what personal tax band you are in.
Unsecured Pension Plan (formerly Income Drawdown) is the name given to the facility to continue to keep your retirement savings invested and take an income each year rather than buying an annuity. This facility can only be continued to age 75, at which time an annuity has to be bought or the money transferred into an Alternatively Secured Pension.
Pensions are long-term investments designed to help ensure that you have enough income in retirement. The government encourages you to save towards your retirement by offering ‘tax relief’ on your contributions.
The introduction of Pension Simplification legislation on 6 April 2006 (A-Day) brought about the biggest change in pension legislation in a lifetime with the following aims:
Stakeholder pensions are a type of personal pension. They have to meet certain government standards to ensure they’re flexible and have a limit on annual management charges. The minimum payments are also low and you can stop and re-start payments whenever you wish.