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What is a Pension?

A pension allows you to put money aside now while you’re working, to provide an income for when you retire.
Depending on the type of pension you have, you, your employer, and others such as your spouse or children can all pay into it. 

The government also ‘contributes' to your pension in the form of tax relief; in other words, if you put some of your earned income into a pension, the tax they would normally have taken is ‘given’ back to you.

Pensions are free from income tax and Capital Gains Tax (CGT). 

They are usually invested in stocks and shares, so as with any investment, the value can go down as well as up and you may get back less than you put in.

Depending on your personal situation, there are three types of pension in the UK:

Workplace Pension
Sometimes referred to as Company or Occupational Pension Schemes, these are set up by an employer where contributions are usually (but not always) made by both employer and employee.

Defined Contribution Pension Scheme:

You pay in a percentage of your salary and your employer also contributes to it as well; these pension contributions are then invested by a pension provider chosen by your employer. The income you get in retirement isn’t guaranteed and much depends on how much has been contributed and the performance of the investments within the pension.

Defined Benefit Pension Scheme:

Sometimes known as Final Salary Pension Schemes, you get a specified amount as pension income based on your salary and the number of years worked for your employer. You may have to pay pension contributions and your employer usually will as well.

Personal Pension
Sometimes known as private pension, you can set this up yourself (even if you already have a workplace pension). The choice of personal pension provider is up to you, as is the amount and frequency of pension contributions (subject to annual and lifetime limits) and the selection of investments themselves.

‘Basic’ Personal Pension:

Making regular contributions to your personal, pension, these are usually managed by your pension provider or your financial adviser who can offer various investment strategies according to your personal circumstances and attitude to risk.

Stakeholder Pension:

Similar to a ‘basic’ personal pension, there are strict government rules about how stakeholder pensions are managed such as low minimum contribution amounts, only a few investment options and maximum limits on provider charges.

Self-Invested Personal Pension (SIPP):

Usually more suitable for large pension contributions and experienced investors, a SIPP is a type of personal pension which comes with additional ‘bells and whistles’ and may incur higher charges.

Basic State Pension
When you attain state retirement age, the government will then pay you a guaranteed state pension income for the rest of your life, providing that you have at least ten years of qualifying National Insurance Contributions (NICs) or credits and meet other eligibility criteria.

The Basic State Pension could provide a useful supplementary pension income but should not be relied upon to support the type of retirement you’d probably like to have.

Your Pension at retirement

Your Pension at retirement

  • Once you turn 55 years old or retire at a later date, you have a number of options as to how you take your pension income.
  • The first 25% of your pension is tax-free with the remaining 75% taxed as earned income according to your rate of tax.
  • Depending on the type of pension(s) you have, it may be used to mitigate against inheritance tax.
Things to think about...

Things to think about...

  • Don’t ignore your pension arrangements and leave them to chance.
  • The earlier you start contributing to your pension, the better, as the potential for investment growth and the compounding effect may be maximised over the longer term.
  • It’s important at an early age to calculate how much you need to contribute to your pension as this and future investment performance will determine your pension income in retirement.
  • It’s a good idea to stay on top of your pension arrangements to ensure that your hard-earned money is working hard for you and being managed properly; for example, make sure that your pension investments are reviewed regularly.
  • Consider pension consolidation as it’s more than likely that you will pick up more than one pension pot during a lifelong career (see ‘Pension Consolidation’).

How we work

We keep it straightforward and simple.

1  

Arrange a Lifestyle Planning Meeting

A meeting at our expense to identify where you are now, how you got to where you are now, and where you’re trying to get to in the next 5, 10 and 20 years and so on for the rest of your life; in other words, a Lifestyle Plan.

     
2  

Arrange a Financial Planning Meeting

Another meeting, again at our expense, to identify all the resources available to you now, resources that will become available in future, and most importantly resources that might have to become available to satisfy the needs of your Lifestyle Plan.

     
3  

Arrange an Implementation Meeting of your Financial Plan

If, and only if, your Financial Plan indicates that that your needs would be best served by a financial or investment product and service, it is at this point that a recommendation will be made, again at our expense. If you are happy to go ahead in full knowledge of the facts and the fees involved, we can then start to implement your Financial Plan. If you want to walk away at this point, no problem; we wish you well and it won’t have cost you anything.

     
4  

Arrange an Annual Forward Planning Meeting

Now on board as a Sutherland IFA fee-paying client, an annual meeting is held to make sure that your Lifestyle Plan and your Financial Plan are on track to meet your financial goals and objectives.

Let’s start a conversation

We welcome the opportunity to learn more about how we can help you. Schedule a free no-obligation consultation, you might be surprised!