Pensions and retirement planning

Find out more about saving into a pension, planning for your retirement and taking an income.

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Some people want to travel the world or take up a new hobby when they retire. Others see it as a perfect opportunity to volunteer with a charity or start their own business. Whatever you are planning for the future, we can help you to make the most of your pension and other investments to achieve the retirement you want.

How much money do I need in retirement?

Retirement planning usually starts with thinking about what you want your future to look like. Then, it is possible to calculate how much money you will need to achieve your goals. Using this, we can analyse your savings and outgoings to find out how long your money will last and whether you’re on track, or look at what you need to do to get there. We call this cashflow modelling.

Saving for retirement

Saving for retirement is often one of life’s most significant financial challenges. Our experts can give you advice in a number of areas to help with this, including:

  • Using your pension annual allowance
  • Navigating the tapered annual allowance (if you’re a higher earner)
  • Making extra pension contributions using pension carry forward
  • Using other savings and investments, such as ISAs
  • Ensuring your savings are held in high-quality investments

Your investments

If you will be relying on investments held in your pension or other accounts for an income in retirement, it is important that your money works hard for you. Our investment managers can make sure that it is, either by managing your investments for you or giving you advice on all your investment decisions.

They can also review your portfolio over time, ensuring it continues to reflect your needs and circumstances. This could be by reducing your level of investment risk as you get nearer to retirement or switching the focus of your portfolio to generating an income when you retire.

Taking an income

Retirement is no longer about simply saving into a pension and buying an annuity. After you reach age 55 (increasing to 57 in 2028), you can take a retirement income in a way that suits your requirements while making the most of your various tax allowances. This could include taking pension lump sums, buying an annuity, going into income drawdown, selling parts of your investment portfolio and taking income from ISAs, dividends and cash savings. We can show you how long your money should last and how much you can afford to spend each year.

Frequently asked questions about pensions and retirement

What is the difference between a defined contribution and defined benefit pension?

A defined benefit pension (also known as a final salary pension) is usually set up by your employer. It guarantees you a regular income in retirement, usually based on your salary and the number of years you have worked. The level of income may also increase in line with inflation.

On the other hand, defined contribution pensions do not offer you a guaranteed level of income. The amount of money you will have in retirement depends on how much you and/or your employer has contributed and how well your pension investments have performed.

What is the annual allowance?

The annual allowance is the maximum amount of pension contributions you can make each tax year that benefit from tax relief. You would be subject to a tax charge (the annual allowance charge) if your pension contributions exceed your available annual allowance for a tax year. The standard annual allowance is currently £60,000. Each year, you can personally contribute up to 100% of your relevant UK earnings into a pension or the annual allowance (whichever is lower) and receive tax relief.

What is the tapered annual allowance?

The usual £60,000 annual pension allowance is reduced for people with an adjusted annual income of £260,000 or more. The allowance reduces by £1 for every £2 of income above £260,000, down to a minimum of £10,000. This is known as the tapered annual allowance.

What is pension carry forward?

Pension carry forward lets you pay more than your annual allowance into your pension by ‘carrying forward’ any unused allowance from the previous three tax years (as long as you have sufficient earnings). You will still receive tax relief on the payments and it can be useful for those affected by the tapered allowance.

What are the tax benefits of pensions?

Investments in pensions grow free from income tax and capital gains tax. Pension contributions are paid from gross (pre-tax) income. Where tax has already been paid on a pension contribution it is refunded. The tax office will automatically top up pension contributions up to your annual allowance by 20% to cover basic rate tax. Higher or additional-rate tax payers can then claim back any higher or additional-rate tax that they have paid on contributions through their tax return.

What happens to a pension when you die?

A defined benefit (final salary) pension will usually stop paying an income when you or, if your pension income passes onto a dependant, your dependant dies. The benefits from a final salary scheme can only be paid to your husband, wife, civil partner or dependant child under the age of 23 (unless they are dependent on you because of a disability).

A defined contribution pension can be passed on to anyone you choose via a nomination of beneficiary (also known as an expression of wish). If you die before the age of 75 the pension will be passed on tax-free. If you die after 75, your beneficiaries will pay their usual rate of income tax on any money taken from the pension.

Are pensions liable to inheritance tax?

Pensions do not usually form part of your estate so they are not charged with inheritance tax when you die. However, any income or lump sum death benefits paid from your pension may form part of your estate and therefore be liable to tax.

Passing on a pension has become a popular estate planning tool for this reason. In some cases, when you retire, your pension is the last thing you should touch as it might be more tax-efficient to draw on your assets which are liable to inheritance tax first, so that you can leave behind more in your pension to your beneficiaries.

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The value of investments, and the income from them, may go down as well as up and investors may not get back the amount originally invested.

Tax legislation

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.

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