Life events won’t let you ignore your pension
For many people, the importance of their pension is challenging the traditional wisdom that your home is the No1 most significant investment you’ll make during your lifetime.
My daughter recently asked me why I found ‘Pensions’ and ‘Retirement Planning’, in general, so interesting and engaging when most individuals probably find it bland and turgid.
I confess that I didn’t have an immediate response for her but, after giving it some thought, I think that I’ve now discovered why.
But it is generally relevant to individual’s lives in ways that she had never previously understood or appreciated. Until now.
So, when I pointed out to her some of the areas where we advise clients and assist them to achieve the most optimal solution for them, she began the process of conversion.
You see, ‘Retirement Planning’ straddles a huge range of issues and events that arise throughout our lives and for which proper advice is required but often not sought.
- So, we regularly find ourselves advising clients who:
- Change jobs and wish to know what they should do with any previously accumulated pensions(s).
- Are facing redundancy and wish to understand the interaction between their lump sum entitlement from a pension scheme and the amount of tax-free termination payment they may get.
- Are going through a divorce or separation and need to understand the implications on their pension fund and long-term well financial well-being.
- Are about to retire and want to understand the best solution for them with the fund(s) they have accumulated through a lifetime of work Need to understand the tax benefits available to them and the scope for funding.
- Need to understand how to properly and appropriately invest their contributions to a pension scheme to ensure that they are getting the best returns possible.
- Are facing death and need to protect and provide for loved ones who are left behind. We also deal with the aftermath of the death of the pension fund holder and implement the succession plan made by the pension fund holder.
- Pension fund investing is no longer truncated at the point at which benefits are taken. The advent of the Approved Retirement Fund (ARF) means that we are advising clients on how to invest and allocate funds well into their old age. That presents its own challenges in a world of zero interest rates. The traditional ‘pension’, underpinned by annuity purchase is very expensive and this fact has now compelled individuals to seek alternatives.
I could go on!
The point is, that it’s interesting because its so varied, so important to individuals and every single client has different circumstances. If it challenges the client, it almost certainly challenges us too in our quest to find solutions.
Ask many clients about their ultimate financial objectives and they are likely to tell you that they aspire to be independent, debt-free and in control of the wealth they have accumulated.
Ask many of them what plan they have in place to achieve financial independence and in a high percentage of cases, the responses will be vague and their plans, if any, uncoordinated.
Conventional wisdom suggests that our own homes will ultimately become our greatest financial asset. This notion now has a challenger. And it relates to Pensions and the flexibility now available with the pot accumulated through our working lives.
The traditional “pension” was sold on the basis that it provided you with “income” in retirement and allowed you to see out your retirement years without the necessity to work or to worry about where your lifestyle was being funded from. However, we now live in an unprecedented era where we live longer than ever before and where interest rates (and bond yields) are historically low. This combination means that for most of us, buying a pension is now hugely expensive. And it dies with us.
I mentioned the Approved Retirement Fund (ARF) above. The introduction of this retirement option has been an enormous game-changer in the world of Retirement Planning.
Individuals now have the choice of taking “capital” instead of “income” through ARF investment.
Accumulated pension capital can be retained at retirement, invested, used to fund income (although variable and not guaranteed) and, crucially, if required, passed on to the next generation very tax efficiently. And part of the accumulated pot can be kept tax free when you draw it down at retirement.
Marry this opportunity with the tax reliefs which are available for contributions and the tax-free status of the funds where those contributions are invested, and you begin to understand why clients looking for financial independence must give this topic further serious consideration.
And it doesn’t end there. Proper use of the reliefs/benefits available for company directors in this area, allows for significant extraction of funds from their companies to provide for retirement benefits.
Whether you are miles from retirement like my daughter or you face some other event which will impact on your long term retirement plan, getting good advice is paramount for your own unique circumstances. And, like my daughter, you may well be surprised at how often it impacts on life events.
For further information, contact Brewin Dolphin's Cork office at 1 Albert Quay or ring us at 021 2373820. Joe Hanrahan, Brewin Dolphin.
