Retirement Planning

Everyone needs to plan ahead for retirement.

The basic state Retirement Pension will give you a start but you will need to build up a second pension to make sure you have the lifestyle you want in retirement, the sooner you take one out, the better.

You should always think carefully before you decide which type of pension to choose, and how much money you need to put away to reach the level of pension you want when you retire.
If your employer offers access to an occupational scheme, it is usually worth joining. Apart from your home, your pension is likely to be the biggest investment of your life, so it is important to get the decision right. You need to shop around to compare what different pensions and pension providers have to offer.
You may well want to get expert financial advice. At LaiPeters & Co we have the contacts at hand to let you do this.

Basic State Pension

You can build up rights to the basic state Retirement Pension if you pay, are treated as having paid, or are credited with, National Insurance contributions.

From April 2000, you can be treated as having paid National Insurance contributions if your earnings fall between the lower earnings limit and the primary threshold (£4,368 and £5,355 a year in 2006/07). ‘Credited’ means that the Government has added some contributions to your National Insurance record for you.

The years during which you build up your rights to the basic state Retirement Pension are called ‘qualifying years’. The amount of pension you receive depends on the number of qualifying years built up before you reach state pension age. You cannot choose to stop contributing to (contract out of) the basic state Retirement Pension.

If you are a man, you need 44 qualifying years to get a full (100 per cent) basic state Retirement Pension. If you are a woman who will reach the age of 60 before 2010, you need 39 qualifying years. However, when the state pension age becomes 65 for both men and women (this is being gradually introduced from 2010 and will be in place by 2020), the number of qualifying years that a woman needs will increase to 44.

Some people do not get a full (100 per cent) basic state Retirement Pension because they have not paid enough contributions. They may only have worked for a few years, or they may have had earnings below a certain level (the lower earnings limit).

Private Pension Schemes

Here are a number of different private pension options for you to consider:

Occupational pensions

Many employers have an occupational pension scheme for their employees. This is sometimes called a company or ‘works’ pension. It may be a salary-related scheme, which provides a pension that depends on the number of years you belong to the scheme and your earnings; or a money purchase scheme, which is a scheme where contributions are invested and then used to buy a pension when you retire.
You should ask your employer if they have an occupational pension scheme and what sort of scheme it is. If you join your employer’s occupational scheme, your employer pays money into the scheme and you usually pay money in as well. You will normally get tax relief on your contributions. Occupational pension schemes often provide other benefits, such as a pension to your husband or wife when you die (and sometimes to your partner if you are not married), or a pension if you become ill or disabled and have to retire early.

Stakeholder pensions

These are low-charge, flexible pensions. Since April 2001, most employers must provide their employees with access to a stakeholder pension. If your employer is exempt, or you want to get your own stakeholder pension, they are available from a range of financial services companies and other organisations, such as trade unions.

Personal Pensions

These are provided by financial services organisations, such as insurance companies, banks, investment companies and building societies.
Depending on your circumstances, you should think about contributing to a stakeholder or personal pension contracted-out of the additional state pension, or a stakeholder or personal pension on top of the additional state pension.
If you’re thinking of a stakeholder or personal pension, the most important question is whether it is the best arrangement for you. If you have already joined, or are thinking of joining a personal pension scheme, you should ask the scheme provider whether it will be easy and cheap for you to transfer to a stakeholder pension (or other pension) if this is better for you.