Don't wait for the gold watch

Retirement might come sooner than you think, so start planning now. By Justin Urquhart-Stewart
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The Independent Online
You may have been singing the old Beatles hit, Will you still need me when I'm 64?, when you were in your 20s, but don't wait until your 50s to plan for it. These days it is difficult to know even when we are going to retire. Early retirement and redundancy are often the norm, and few of us can now expect to work through to 60 or 65. That doesn't mean you have to panic, but it does mean you have to make careful decisions. Prepare for it earlier, even though it may come later.

Check your company's occupational pension plan well before the "gold watch" collection. Is it fully funded? If not, consider an additional voluntary contribution or a free-standing AVC which is separate, to take your total pension contribution up to the maximum of 15 per cent of your salary, plus benefits.

If it isn't fully funded, make full use of annual contribution limits. If you are not in a company scheme and can contribute to a personal pension, then at 61 the amount you can contribute is raised to 40 per cent of your qualifying earnings, and you can "go back" for six years to top up. Check with an adviser, but look to shovel in as much as you afford.

Also check for old pensions. Many of us have changed employers and you may have an old pension entitlement you left behind. If in doubt, contact previous employers - you never know what might be there.

Often, life, health and illness cover ends with your retirement. You may wish to replace these. Ask your employer for guidance. It may be possible to negotiate a special deal for retired staff.

From 65, you are entitled to extra tax allowances, so confirm they are up to date. The allowances are reduced when your income exceeds pounds 14,600 per annum. Ensure therefore that you are using tax-deductible outgoings and fully explore tax-free allowances for savings. The extension of allowing corporate bonds into PEPs this year has further enhanced income opportunities. But care here, please. This is a fashionable area. You will need careful direction depending on your own needs and position. Quality of provider and product are important. Don't just get tempted by low costs, free offers and a rare plastic pen!

One of the most crucial moments for your financial affairs will come when you start to draw your pension. Be it state, corporate, or private, you can postpone taking all or part of your pension. The longer you delay, the greater the income received, but great care needs to be taken. Much will depend on your type of pension, and your life expectancy.

"Money purchase" schemes can delay the purchase of an annuity (an agreement to provide you with an annual income against a lump sum paid by you), but this does have significant risks.

The value of the annuity will vary according to your age, and more particularly with prevailing interest rates. So even by delaying the decision, you might find yourself worse off.

Pool the information relating to your savings and pension. Then take professional advice from several sources before choosing. There is no perfect template, but there is assistance to help tailor assets to needs. Take your time to get this right.

To cover the risk of being not quite as mobile as you would hope, it is also worth planning now, while you are in your 50s, for residential care. Consider a lump-sum payment for this or an income-producing set of investments to cover the costs.

To some, the purchase of a house years back was the basis of their pension. Although property prices have declined in real terms, there is still value in property which can be released, possibly by moving to a smaller residence.

If you are thinking of taking out a home income plan, beware: this is a scheme which provides cash against the value of the home but there have been some dreadful cases over the past few years, so don't rush into them. Talk to your family. If they are to be your eventual beneficiaries, they may well wish to participate in a more beneficial arrangement with you. However, if you have no immediate family or they cannot help, be aware that home income plans may be a useful alternative.

This is another key moment to review not only your will, but also your inheritance wishes. Your estate at your death may well be more than you think. As your children mourn your departing, they may also be grinding their teeth over having to pay the tax. This does not have to be the case. The vast majority of wills are straightforward. People with a few assets and a house can easily obtain wills for less than pounds 50 for a single will and pounds 80 for a joint will.

At this stage in your life, there is a good chance that your parents may need residential care in the not too distant future. Making sure they have enough to cover this expense is obviously paramount. It is important, however, to ensure that their estate is properly arranged. Here the use of trusts can be very good value.

By constructing financial affairs on the basis of a three-tier family structure, you can pass value to grandchildren for education and so on, and potentially minimise both inheritance and income tax.

Anyone who has, or whose parents may have, a potential estate over pounds 154,000 should seek advice on considering trusts as an option.

Obviously this requires professional advice and is not just the domain of lawyers. This needs to be arranged as part of a financial structure including investment, tax and inheritance expertise packaged together.

By looking for linked services you should be able to reduce the cost and maximise the opportunities.

The good news is that despite all the changes and difficulties in the world, we have never had so much choice in arranging our financial affairs. The bad news is we haven't got a clue what the experts are talking about half of the time. To make the most of what we have hidden away, we need to keep abreast of the situation. Therefore don't sit back and assume all is complete. Manage your money to help you manage your life. Get the best from both. You may retire but make sure your money doesn't.

Justin Urquhart-Stewart is business development director at Barclays Stockbrokers.

YOU AND YOUR PENSION PLAN

Don't

Rush to buy an annuity as soon as you retire before consulting a professional adviser on the alternatives. These include money purchase schemes, which provide you with some income while you retain the capital.

Leave more than you must for the taxman. If your estate or your parents' estate is over pounds 154,000 consider trusts to pass value across a generation.

Let your money retire when you do. Make sure it keeps working for you.

Do

Check your pension or entitlements - state, occupational and personal - and check whether you can make additional contributions to build up your pension fund while you are still working.

Invest any extra you can put away in tax-efficient savings like Tessas or PEPs.

Think about moving to a smaller home.

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