Pension Advice & Retirement Planning

George Osborne started a pensions revolution in late 2014, opening up a wealth of new options and having a profound impact on the way people use their pension savings in retirement. Rules and tax treatment changes to personal pension accounts in retirement came into effect in April 2015, making them considerably more attractive.

These changes simultaneously rang the death knell for annuities. Over the past twenty years, annuity costs have soared as risk-free investment returns have fallen and life expectancy has risen. Annuities are an inflexible and irreversible retirement product that lock in current interest rates and lock out further investment opportunity or access to capital.

Not only are they expensive but they look increasingly outdated for modern retirement, which can extend over 25 years with periods of very different income and capital requirements. Even when rates were more attractive, annuities were never popular primarily because of the implicit gamble they represent. Those who die young do badly and end up subsidising those who live longer. Annuities are ultimately worthless to the next generation.

It is not surprising that within months of the legislative changes being announced, annuity sales collapsed. Swathes of people are using the new rules and using pension drawdowns to access their pension savings in retirement.

According to the HM Revenue & Customes (April 17), a total of £10 billion in pension assets had been withdrawn and the Association of British Insurers stated that annuity purchases have fallen by approximately 62%. The Association estimates that this trend will continue as people begin to more fully understand the options available to them.

The Pension Plannning overview

It is important to note that our approach when reviewing when reviewing pension transfer case involving 'Defined Benefit' schemes (also known as 'Final Salary'schemes) is to to start with the presumption that,in most cases,transferring away from the 'Defined Benefit' scheme is not in the individual's best interest.

To briefly explain the rationale behind our stance,it is important to understand the basic difference between 'Defined Benefit' ('Final Salary' scheme) and 'Defined Contribution'scheme (Money Purchase scheme) and how benefits are funded.

With a 'Defined Benefit'scheme the pension income the indivdual receives at retirement is based on the number of years'service and,in most cases,their 'Final Salary'with the employer.

Typically,this type of scheme providers benefit to the Individual (current or formar employees) based upon lenghth (years,months and days) of service.The main benefit of these types of scheme is that the pension available to the individual at retirement can be pre-determined(subject to various increases due to inflation) irrespective of how the financial markets performing.This is because the pension paid is not dependent on investment growth as it is a promise from the sponsoring employer.

While 'Defined Benefit' schemes can be transferred into another employers 'Defined Benefit' scheme,more commonly in the private sector,transfers from an existing scheme will typically be placed into an alternative arrangemnent-a 'Defined Contribrtion'scheme(also known as Money Purchase schemes).

With 'Defined Contribution'arrangements,the benefit payable at retirement are based on the amount of money paid into the scheme,how well the investments perform and,when the benefits are drawn via 'income withdrawal',whether the pensionand the underlying investments can sustain income for the remainder of your life.As such,the pensionpaid is heavily dependent on investment growth as there is no promise or guarantee to pay a minimum level.

Where an individual is looking to secure income in retirement,the benefits payable will depend on several factors,for example,the fund size along with annuity and interest rates at the date of retiremet.

Alternatively,where a flexible income strategy is required,it will be reliant on fund size at retirement,the level of income required at various life sages and the performance of the investments within agreed risk parameters. These factors mean that the certainty or guarantee availablke with 'Defined Benefit' scheme in regards to pension income is lost once the benefits have been transferred away.

It is important to note that a transfer,once completed,cannot be reversed.

As such,based on the above,we would not reccommed a transfer unless we can demonstrate,taking all relevant factors into consideration,that it is in an individual's best interest to do so.

There is a set timescale for transfers and this runs from the day the transfer is provided,the timescale is 90 days,if the offer is not transfered within this timescale a recalculation is required by the scheme with additional charges payable to the trustees.

*We do work within these timescales however we provide no guarantee that this can be completed within the timscale due to circumstances outwith out control.

Have your pension reviewed now, we offer the following services;

  • Occuptional Pension Review Service
  • Personal Pension Review
  • Pension Freedom and options available
  • Succession Planning within Pension Planning

Financial Guides

September/October Magazine 2018

September/October Magazine 2018

Cash may not be King: Pension savers risk a significant tax bill 

Download

Factsheets

A Guide to Self-Invested Personal Pensions

A Guide to Self-Invested Personal Pensions

Taking greater control of your retirement plans for the future

Download

News + Media

Better Safe Than Skint…

Monday April 30, 2018

Traditionally when retiring an annuity was purchased providing income throughout life providing longevity protection with over 700,000 pension holders accessing their pots, 17% of which have purchased some form of an annuity, not that surprising I hear you say. However, annuities purchased from existing providers (clients not using open market option) are still hovering around …

More

Insistent Client- Defined Benefit Disaster

Monday April 30, 2018

There has been much discussion within the financial advice sector on the term “insistent client” ever more so with regards to Defined Benefits transfers and how this should be approached. Let me nail my colours to the mast from the outset. There is no place for “Insistent client” within the Financial Planning Profession for the …

More

Stock Market Turbulence Is Normal

Monday March 19, 2018

state pension, retirement age, retirement planning, workplace pensions, starting a pensionDon’t let global uncertainties affect your financial planning for the years ahead. The overall direction of developed stock markets is a relentless and continual rise in value over the very long term, punctuated by falls. It’s important not to let global uncertainties affect your financial planning for the years ahead. Individuals who stop their investment …

More

Can “DIY” pension be the best option for DB transfers

Monday March 19, 2018

I read with interest the rise in individuals managing their pension pots has increased from 5% to 30% since pension freedoms in 2015. Should there be concerns or is this just down to the general public’s view on financial planning, we read almost every other day that self-managing pensions are the best option, why pay …

More

Twitter

© 2018 AAC • all rights reserved • Developed by Zostro Digital

Registered in Scotland SC362302 Advanced Asset Consultants Ltd. is authorised and regulated by the Financial Conduct Authority FCA Registration No: 506551 The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning.

The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK. This website is designed to provide you with general information only and does not attempt to give you advice on any particular investment or to recommend any particular investment to you. If you have any doubt as to whether a particular investment is suitable for you, you should contact Advanced Asset Consultants Limited on 0141 331 2434.

eia uksif AAC