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Retirement Planning

Before someone finishes their working life, retirement planning is used to ensure that once an individual finishes work, they are financially secure to live off their assets until they die. Generally, the younger someone starts planning for their retirement, the easier it is to build up enough assets to maintain a standard of living they require once they finish working. It can be a very complex area of financial planning and one which will usually require some financial advice.

Throughout working life in the UK, most people pay National Insurance Contributions which go towards their state pension. This state pension however may not be sufficient for many individuals to retire on enough money to keep up a good and happy lifestyle. It is often therefore necessary to have extra retirement provisions to supplement the state pension in retirement.

The most common savings vehicle in the UK is a pension. It is simply an approved and tax-efficient savings plan that enables someone to save money over a period of time in order to provide a regular income and often also a lump sum in retirement. The reason why pension schemes are deemed to be tax-efficient is because all contributions made into a pension plan by an individual are given tax relief. This means that when someone pays money into their pension, the tax that they paid to earn that money will be given back and added to their pension contribution. This means that more money is paid into the pension plan than just the individual’s contribution. There are limits of how much people are entitled to pay into a pension in any one tax year and usually payments are made monthly but can also be made on different frequencies or single one off payments. Money within a pension scheme can also be transferred from one provider to another if there is good reason to do so.

Pensions can be set up for an individual person or they can be arranged for employees through their employer. Employer pension schemes often have further benefits where the company will add more money into the plan or perhaps match the employee contribution. This is seen as a useful way for employers to offer perks to employees and encourages staff retention.

There are a variety of different types of employer pensions around such as final salary, group stakeholder or group personal pensions. For individuals who are not part of an employer scheme, there are individual stakeholder and personal pensions to choose from as well as a number of other options. Other retirement plans could include products like Self Invested Personal Pensions (SIPP’s) or Small Self-Administered Schemes (SSAS).

Retirement planning is very specific to an individual’s circumstances and requirements at retirement age so it is important to look at various different options of how best to cater for their needs. The action required will depend on the age of the individual, their planned retirement age, their income, the amount they think they will need when they retire and a number of other factors. These plans will need to be regularly reviewed to ensure that they remain on track and adjustments need to be made for any change in objectives.

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