Retirement is the last thing you think about when you are young. But that is a dangerously short sighted point of view. The sooner you sort out your pension, the longer your investment has to accrue and the more comfortable you’ll be in older age. Admittedly there is a lot to think about as there are so many options but AEON is happy to help with the decision making process.


Pre-Retirement

Put simply, you can divide your life into three phases:

LifeStages 18th

So, in reality you are earning for 45 years in order to fund about 20 years of retirement, which logically means that you need about 30% of your lifetime earnings for a comfortable retirement. Fortunately, most people are happy to have a lower income in retirement because they have fewer liabilities. This, coupled with the fact that the pension fund grows tax effectively, contributions attract tax relief, and more generous income tax allowances in retirement means that you don’t need to contribute 30% of your income. Even so, providing for retirement requires serious financial commitment.

A lot of people don’t rely solely on their pension for their retirement income but combine it with other investments, with business assets and sometimes property investments. You should plan to get the right mix so that you can enjoy your retirement while you are still young enough to do so.

People may be put off investing in pensions for various reasons, such as:

  • Bad press. There have been a series of pension scandals over the years but please bear in mind that it is bad news, rather than good news, which makes the headlines
  • Most pension providers fail to review historic contracts whereas at AEON we pride ourselves in providing an ongoing service for clients who require it
  • Poor annuity rates
  • The misconception that your pension dies with you.

Pensions – Which One?

Pension legislation has changed significantly over the past 30 years. In 2006 the Government attempted to simplify the whole pension structure with the introduction of ‘Pensions Simplification’. To some extent this worked, but the legislation was still complex. Since then there have been a series of amendments and legislative changes that have complicated rather than simplified pensions.

The most important things to note are:

  • If your employer offers a Final Salary pension scheme you should almost certainly join it. This type of contract is usually not now available to private sector employees
  • Some employers offer a variety of Money Purchase pension schemes. Because such schemes generally provide an employer contribution, they offer an uplift in the contributions being invested when compared with your own individual scheme
  • A new type of compulsory pension scheme is gradually being introduced via your employer. The legislation is known as Auto Enrolment with a default scheme known as NEST (National Employers Savings Trust). Companies can organise their own schemes as long as they meet the legislative requirements to be exempt from providing NEST. Auto Enrolment is being introduced in stages, initially to larger employers, but it will affect all employers by 2016. Both the employer and employee must contribute to these schemes and ALL employees will be automatically enrolled in the new arrangements. Although an employee can opt out they will have to continue to opt out every three years.

The common factor between all of these schemes is that there is an element of employer contribution which makes them much more attractive. Your future pension pot is aided by various tax breaks and your employer pays into your savings plan. Who wouldn’t sign up to such a scheme?

In isolation these schemes may not be sufficient to meet your retirement needs, so you should also consider additional pension provision or other investments.

If you’d like advice on your pension and retirement planning, please contact AEON to arrange a free, no obligation meeting with one of our advisers.