THE music festival season has come and virtually gone for this year, and it is always at this time of year that realisation dawns that more and more of those rock gods from yesteryear have suddenly become of pensionable age.
Among those on stage at this year’s Glastonbury Festival were a wealth of veterans including Tom Jones, Status Quo, Neil Young, Crosby Stills and Nash and the Boss himself, Bruce Springsteen.
Elsewhere at British festivals this summer you could find others who have long left the first flush of youth behind; bands like the Pet Shop Boys, Duran Duran, The Specials, Human League, Ultravox and Squeeze.
They all still rock but the years roll inexorably by. The rock generation of the 1950s and 60s are today’s pensioners. And before they know it, the present crop of rising rock stars will be heading towards pensionable age.
This exemplifies why the importance of retirement planning should never be underestimated. And yet, sadly, it is. According to a recent survey commissioned by the BBC, half of UK adults aged between 20 and 60 are not putting aside any funds into a pension.
The survey indicated the situation was worst among under-30s, with only about one in three putting anything into a scheme at all. Among 41 to 60-year-olds, 45% are not currently paying into a pension fund (Source: BBC 26/5/09 – Survey by Gfk NOP commissioned by BBC:- http://news.bbc.co.uk/go/em/fr/- /1/hi/business/8068728.stm).
For workers in their 20s and 30s, retirement can seem a long way off, but with people living longer, the reality is that they need to start funding their retirement as early as possible to avoid a late pension panic. Retirement planning involves saving over the long term, and it is therefore very important that a savings culture is instilled in people from a young age.
A savings culture can be nurtured among young people at an early age by parents and grandparents, providing valuable nest eggs for the future. By doing so, young people will see the benefit of regular saving.
The key to effective retirement planning is to start investing as much as you can afford as soon as possible, either on a regular basis or as a lump sum, so that money has plenty of time to grow. The longer you save for retirement, the more compound interest increases the size of your fund.
The golden rule is to find out exactly how much is needed in retirement, and start planning for it now. With increased longevity, retirement can now last longer than the time we spend working. It is therefore essential to accumulate more while we are working in order to meet the extra costs of living longer.
Much simpler
The recent changes to legislation have made the pension system much simpler and more flexible for everyone. People can now invest as much as they earn into a pension plan provided this does not exceed £245,000. A lifetime allowance of £1.75 million caps the size of a fund on which individuals can claim tax benefits.
What makes pension contributions special is that tax relief is available. Personal contributions are payable net of basic rate tax of 20% and relievable against the higher rate of 40%. However, individuals with an income above £150,000 in this or either of the previous two tax years may only receive higher rate tax relief on contributions of up to £20,000pa. Furthermore, 25% of the fund can be taken as a tax-free lump sum at any time after the age of 50 (or 55 when this becomes the minimum retirement age in 2010-11).
More flexibility
Another change is that people can take benefits from the age of 55 without ceasing employment, which increases the number of options available to people. You no longer have to purchase an annuity, you can take the tax-free cash and decide not to take an income from your pension, and you do not even need to purchase an annuity when you reach the age of 75.
This increased all-round flexibility in the system gives people a real chance to start funding a good pension. But as we have seen, the years rapidly roll by and the vast majority are finding out that the prospects of living longer could mean a greater risk of outliving savings.
Most people do not have the time or knowledge to understand the many tax-efficient ways to fund this most important stage in our lives, which is why it is vital to seek the best professional advice from a wealth manager. Then you can sit back, rock in your chair and watch the years roll by. For further information or to discuss financial planning, contact the author, a founder member of The Ellis McComb Partnership,3Mortimer Street, Birkenhead, Wirral, CH41 5EU; telephone 0151 650 6520, e-mail ellis.mccomb@sjpp.co.uk, website; www.sjpp.co.uk/ellismccomb. The partnership is an appointed representative of the St James’s Place Wealth Management Group.
