How your life stage relates to retirement: In your 50s or 60s
By now, retirement will be in your sights. You may have a firmer idea of how things might pan out. You might now be in a position where you can tweak things in your pension and investment planning to make sure you are in a position where you have options. It’s never too late to start planning, after all there is a £1,073,000 lifetime limit on pensions. If you haven’t yet received financial advice then talking to a pension specialist will help to identify what assets you have and how they can be leveraged in your retirement planning. You will also need to find a way to ensure you are tax efficient with your hard-earned money. This becomes complicated and seeking financial advice will put you in a better position than if you got no help at all.
Pensions are where most people start off when thinking about retirement. In fact, your assets, pensions, savings and investments will all play a role in your retirement planning. When it comes to pensions these complex products are designed to allow regular contributions to mount up over time to a final retirement fund. They then pay out (or this same pot can be used in other ways) over the course of your retirement. There are many types of pension, but some of the most common are:
Defined contribution (DC) pension schemes
You, and potentially your employer, pay a defined amount of money into a pension pot. The amount the pension will provide in your retirement is changeable and will depend on factors such as the amount you pay in, the investment performance, and how you choose to use the pot after the age of 55.
Defined benefit (DB) pension
This pension contribution changes based on: your age, how long you’ve worked and the salary you’ve earned. Your employer will pay into this pension, and you can make additional contributions to the scheme as well. This will then pay out a defined amount when you retire. After you die, the pension may continue to pay out to a spouse, civil partner or dependent.
A type of defined contribution pension scheme. You’ll need to choose a pension provider and arrange the contributions yourself. This offers you ultimate responsibility, but it’s a wise idea to be in the know about the ins and outs of pensions and how they can affect your retirement plans. Often people have workplace pensions and their own personal pension.
Another type of defined contribution pension. They are designed for low minimum contributions and flexibility across their payment lifetime. The charges will typically remain low and there will be a default investment strategy. There might not be that much choice with a stakeholder pension, but they are often simpler to understand.
Self-invested personal pensions (SIPPs)
A SIPP allows you to ‘wrap together’ a whole range of investments. It’s similar to a personal pension, but with more flexibility in the type of investments you can hold. There is a set number of investment types that can be included, such as trusts, securities, deposit accounts, commercial property, and stocks and shares. By including investments in a SIPP you gain growth that is free from Income Tax and Capital Gains Tax, plus additional tax breaks. They can be a good top-up option for your retirement plan.