Salary-related pension based on the number of scheme membership years

Some employers offer these schemes, also known as ‘salary-related pension schemes’. When someone retires from the scheme, it pays them a pension where the benefit is based on rules set out by the scheme.

Building up a pot of money that can be used to provide an income in retirement

With a defined contribution pension, the member builds up a pot of money that they can use to provide an income in retirement. Unlike defined benefit schemes, which promise a specific income, the income the member might get from a defined contribution scheme depends on factors including the amount they pay in and the fund’s investment performance.

Safeguards to protect pension benefits

Transfers from defined benefit schemes to defined contribution schemes will continue to be allowed (but will exclude pensions that are already in payment). However, transfers from defined benefit schemes to defined contribution schemes will be restricted for members of unfunded public sector schemes, although you may be allowed to transfer in very limited circumstances.

Defined benefit pension schemes beyond 6 April 2015

The transitional rules on triviality and small pots will continue to apply to defined benefit pension schemes beyond 6 April 2015. The minimum age for accessing pension savings in this way will reduce from 60 to 55.

One of the principal tenets of spreading risk in your portfolio is to diversify your investments. Diversification is the process of investing in areas that have little or no relation to each other.

Filling in the family gaps

With an ageing population and increasingly more children living at home for longer, more and more people are joining the ‘Sandwich Generation’, having to fund family at both ends of the spectrum, such as their parents and children as well as themselves.

Pressure to keep earning
It is estimated that over a million Britons are now members of the Sandwich Generation and the pressure is on them to keep earning, in order to fund the care and lifestyles of loved ones. The main areas of financial support the Sandwich Generation find themselves paying for includes: food and household bills (54%), paying off debts (54%), home renovations (23%), medical care (32%) and education fees (11%).

What’s more, parents providing financial support to children are having to do so for longer. The research revealed that parents are now spending more on adult children (those aged 22+) than younger children as higher living costs and stagnated wages take hold. More than one in ten (14%) Britons are financially relied upon by their adult children, spending on average £6,411 a year on them compared to the £3,841 a year being spent on younger children.

Double caring responsibility
Unsurprisingly, few find this support easy, with close to half (45%) saying the financial pressure is challenging, while one in four (25%) have had to take out a loan to subsidise family members and 8% have had to increase their working hours or take on a second job (5%). And it’s not just the cost of support that’s having an impact, but time too. The Sandwich Generation are being hit with a ‘double caring’ responsibility, as they are looking after their children as well as parents and older family members too.

Indeed, nearly half (44%) of people in the Sandwich Generation have to balance working full-time with spending an additional 19 hours each week caring for a parent or older relative and twice as many hours (39 hours per week) looking after a younger relative.

The research shows how the changing nature of modern families is placing real financial pressure on those who are having to provide support to more than one generation. This help often lasts for many years longer than people may have originally thought. ν

Based on online research conducted by ICM for LV= using a sample of 2,003 UK adults in September 2014. Results have been weighted to a nationally representative criteria.
According to ICM data 3% of GB adults are financially relied upon by younger and older generations (i.e. they have an ongoing or regular responsibility to both generations). This equates to 1.4m people (47,358,000 GB adults x 0.03 = 1,420,740)

There are two main types of schemes

Defined contribution schemes

A defined contribution (DC) or money-purchase pension scheme is one that invests the money you pay into it, together with any employer’s contribution, and gives you an accumulated sum on retirement with which you can secure a pension income, either by buying an annuity or using income drawdown.

Occupational pension schemes are increasingly a DC, rather than defined benefit (DB), where the pension you receive is linked to salary and the number of years worked. As an alternative to a company pension scheme, some employers offer their workforce access to a Group Personal Pension (GPP) or stakeholder pension scheme.

Limiting the amount of tax relief you’re allowed

You can save as much as you like into a pension, but there is a limit on the amount of tax relief you’re allowed. The Lifetime Allowance for pensions is currently £1.25m (2014/15). In essence, the Lifetime Allowance is intended to cap the level of tax-advantaged pension funds that an individual can accumulate within their lifetime. You usually pay tax on any private pension savings above the lifetime allowance.

You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension. You still need to report the tax deducted by filling in a Self Assessment tax return – you’ll need form SA101 if you’re using paper forms.

Looking forward to a secure and financially independent retirement

It’s good to have choices when it comes to pensions and your retirement, but it’s also important to understand all your options from age 55 onwards.

With the money in your pension pot, you could buy an annuity, take some while leaving some invested, take it all at once, leave it all where it is, or a combination of these. Whatever you do, 25% will be tax-free with the rest subject to tax.

The single most important decision you can make to help realise your long-term goals

Retirement planning involves making your plans for the future now – that means investing your money with the aim of maximising its value ready for when you retire. Careful retirement planning, the right mix of assets and starting sooner rather than later will help lead to the retirement you are looking for.

Historically, for many people, the traditional view of saving for retirement was to simply put your money into a pension, with few decisions to make in the run-up to your retirement date and no choice over how the pension was taken.

Over half of the UK population unaware of government plans

Over half of the UK population are unaware of government plans to reform the State Pension and the impact that will have on them, according to recent research[1]. Among the 55 to 64-year-old age group, 32% are unaware of the changes due to come into effect in April 2016.

New rules will simplify the existing regime

The Chancellor, George Osborne, has brought forward the expected announcement on the tax charge that applies to certain individuals’ pensions on their death. The new rules will simplify the existing regime and come into force from 6 April 2015, abolishing the 55% tax that applies to untouched defined contribution pension pots of people aged 75 or over, and to pensions from which money has already been withdrawn.

Three very important questions you need to consider, sooner rather than later

Inheritance Tax (IHT) in the UK may be one of life’s unpleasant facts, but with the appropriate IHT planning and professional advice, we could help you pay less tax on your estate. The aim of this guide is to provide a brief outline of IHT, a subject that was once something that only affected very wealthy people.

Over half of the UK population are unaware of government plans

Over half of the UK population are unaware of government plans to reform the State Pension and the impact that will have on them, according to recent research[1]. Among the 55 to 64-year-old age group, 32% are unaware of the changes.

The most radical reforms this century

In Budget 2014, Chancellor George Osborne promised greater pension freedom from April next year. People will be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax-free.