WITH life expectancy increasing by leaps and bounds, it's more important than ever to invest in a retirement fund
Retirement years should be clear of financial worries. Yet almost a quarter of adults have made no pension provision but expect to retire by the time they're 62, according to research by Baring Asset Management.
Those now working may be shocked
to learn that the basic weekly state pension is £90.70 for s single person and £145.01 for a couple.
The first principal is to start saving as early as possible. It's a great discipline to tuck away pension money and the compound effect of such saving should achieve a great result.
Pensions can even be started for babies – a fantastic christening gift. With longevity rates now forecasting that 40 per cent of today's 30-year-olds will live past a century, a greater proportion of our earnings needs to be put into retirement funds.
Ask an independent financial adviser to work through your options, which may include a variety of schemes.
Oddly, if you are due to reach state retirement age on or after April 6 2010, the Government is currently unable to provide a pension forecast.
Existing plans – especially if invested in with-profits funds – should be reviewed and remedial action taken where necessary. "Many old-style plans still eat up 10 per cent or more of the annual contribution in charges," warns Iain Wishart of Wishart Wealth Management.
By comparison, many modern personal pensions and stakeholder plans offer charges from 0.5 to 1.5 per cent annually.
There is a large tax incentive in contributing to a pension plan. You only need to put in £80 to gain £100 worth of the pension pot, with the Inland Revenue making up one-fifth.
Higher rate taxpayers can claim another 20 per cent – ensuring 40 per cent discount in total. The overall annual limit has just risen to £235,000.
Both Edinburgh-based Michael Stokes Financial Planning and AB1 Financial Planning have years of experience in this sector.
Look for investment opportunities that are going to outpace inflation, which rose again last month to 3 per cent and is expected to reach 3.7 per cent towards the end of the year.
Among the nation's pre-retirement population, 66 per cent have become increasingly worried about their future financial security, according to the State of Retirement report which was released by LV> (formerly Liverpool Victoria).
Surprisingly, 56 per cent of those surveyed had not yet taken advice even though many admit they are confused by the ever-changing tax rules.
One of the most flexible ways to build up a fund is to use the tax wrapper of an ISA (individual savings account). This ensures your money grows free of income tax and capital gains tax.
The ISA allowance rose last month to £7,200 for each adult. All of this can be placed in stocks and shares or up to half in a cash ISA. Personal equity plans (PEPs) have been renamed ISAs.
Remember, you can only have one ISA provider for each element in a tax year and allow a new provider to arrange a transfer as, if you decide to withdraw and reinvest, it will lose the tax-exempt status.
An experienced IFA will check on the performance of your funds and, if lacking lustre, will be happy to suggest better routes.
Top performers include Artemis Global Growth, Invesco Perpetual High Income and M&G Recovery A.
As you move closer to retirement, it makes sense to reduce volatility. One way is to opt for income funds. These may be equity income based (which rely on above-average dividends) or corporate bond based (which buy the bonds issued by companies and are effectively loans).
The full article contains 636 words and appears in The Scotsman newspaper.
