MANAGING your finances is as important in times of economic prosperity as in economic downturns. Pension and retirement planning now needs a multi-dimensional approach and with many choices available, it can seem daunting and quite often leads people to put planning off for another day. Unfortunately, a comfortable retirement isn't something that happens by itself - it needs careful and active planning. These days when it comes to retirement planning, we have a lot of choice but as a trade-off, we also have to accumulate more money, in a wider range of assets, in order to be able to take advantage of the benefits such as tax allowances. Consideration of the economic outlook has to be taken into account in relation to these issues. Most recently we have all been reading in the press about the present economic optimism and economists expect inflation to pull back from last month's reading of 2.8 to 2.7 per cent. This is good news for the economy as it is backed up by robust retail sales and manufacturing activity. But how does this affect your pension planning? What are the best actions to take when it comes to retirement planning? Does everyone have to do the same thing?
By no means; although most of us still have the traditional view that a pension fund is the only way to plan for retirement, that doesn't have to be the case. There are many actions you can choose to take and your choices should be based on what you want for and from your retirement.
Ideally, planning for your retirement should be viewed and addressed in three clear and distinct stages:
1 Accumulation years - The time you spend building up as much capital and asset value as possible, as tax efficiently as possible
2 De-cumulation years -
Should be the fun part of your retirement. This is the time you spend enjoying life after work and having the money to do it, while keeping the tax liability on your income as low as possible
3 Succession planning - When you decide who, apart from the revenue, is the intended beneficiary of your wealth, created through a life's work And how you approach these stages of your retirement depends upon a number of factors:
? What you expect your income needs for the future will be;
? What you plan to spend your capital on;
? What your income tax position is now and what it is likely to be in retirement;
? Whether inheritance tax planning is necessary.
Regular financial reviews take into account many considerations and in some cases there are opportunities to save you money. If you have been involved in a workplace pension you may be one of many who are being charged hundreds of millions of pounds in hidden fees on pensions held by their former employers.
About 1.3 million people who have changed employer are paying £273 million every year in additional charges on old workplace funds, according to research for The Sunday Times. This practice is causing a stir in political circles and a report by the Office of Fair Trading, expected to be released this week is expected to call for a ban on the practice, known as deferred member charging. It applies to those in defined contribution schemes, rather than final salary schemes.
It is common for annual management charges on workplace group personal pension schemes to more than double from about 0.4 per cent to 1 per cent when an employee stops paying in because they have left the company. The huge rise in fees could wipe nearly 30 per cent off the value of savings.
So, we have experienced some of the worst of times and this has made most people take a long look at their finances and with increased optimism it is time again to take a look at what effect the changing economy will make to our investments, pensions, mortgages etc. With so many choices, it's always helpful to have a discussion with a good independent financial adviser, who can look at your circumstances and ambitions and help you take the right actions for the right outcome.
? Darren McKeever (dmckeever@wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. If you have a query regarding pensions or other financial advice, phone 028 68632692, email info@wwfp.net or click on www.wwfp.net. Follow us on Twitter: @WorldwideFP.
? ADVICE: With so many choices, it's always helpful to have a discussion with a good independent financial adviser, who can look at your circumstances and ambitions and help you take the right actions for the right outcome when it comes to your retirement planning