Your retirement timeline
- Make sure you’re in your employer’s pension scheme and taking full advantage of any offer to match contributions.
- Increase your pension contributions as expenditure and debts reduce.
- Take advantage of your Isa allowance to give you greater flexibility in retirement.
- Maximise the risk on your investments to improve your chances of a good return.
- Understand what you need to save and ramp up your savings to hit your target.
- Ensure any outstanding debts have been repaid.
- Review your pension portfolio and consolidate any stray schemes where necessary to make them easier to manage.
- Seek advice on transferring any final salary schemes to ensure you’re not giving away valuable benefits.
- Contact Pension Wise for guidance on your pension options.
- De-risk your investment strategy if you are taking an annuity in the next 10 years, otherwise maintain a long-term higher-risk approach.
- Request a state pension forecast from the government and gather together statements for any other pensions you have.
- Look at your future income and expenditure to determine whether your plans are achievable.
- Continue contributing to your pension and Isas and consider carry forward to take advantage of previous years’ pension allowances.
- Start sliding down the risk scale if you’re planning to take an annuity, but feel free to maintain the risk if you’re staying invested for the long-term.
- Consider the tax implications of how you access your pension.
- Use your Isa portfolio to provide some tax-free income.
- Shop around for an annuity, and don’t forget to mention any health or lifestyle problems that could boost your income.
- Pay into your pension up to age 75 to take advantage of the tax relief on offer.
- Explore equity release as a means to access funds tied up in your property.
Consider using your pension as an inheritance tax planning vehicle.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
A term to describe financial products or ‘plans’ that help older homeowners turn some of the value (equity) of their homes into cash – a lump sum, regular extra income, or sometimes both – and still live in the home. There are two main types of equity release: lifetime mortgages and home reversion plans (see separate entries for both). Whichever type you choose, you borrow money against the value of your property, on which interest is charged, and the loan is repaid when the house is sold after your death.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.