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A POOR OLD AGE BASIC STATE PENSION WORKPLACE PENSION PRIVATE PENSION NEST
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5 7 9 11 13
2012
Old age is the opportunity to relax, or do all the activites you never got the chance to before. but if you don’t have enough pounds in the piggy, the reality could be dissapointing. The sooner we save, the more we benefit we recieve. Check out your options inside...
A POOR OLD AG
5
BBC News
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Parents are twice as likely to talk to their children about the birds and the bees than they are about pensions, according to a government survey. A lack of awareness about saving for retirement is among the reasons for millions of people not saving enough to pay for the lifestyle their expect when they grow old. A basic state pension is the income which the state provides to people who have reached pension age. At the moment, it is up to ÂŁ97.65 a week for men aged 65 and above and women aged 60 and above. But, as we are all living for longer, the pension age is starting to rise and is likely to reach at least 68 for all men and women just setting out on their working life now. To get a full state pension you need to have paid National Insurance contributions - usually deducted from your pay packet - for 30 years. Pensions experts say that you should top-up the pension provision from the state with a workplace pension or a private pension. In a final-salary scheme, the investment risk is taken by the employer and you are guaranteed a retirement income based on pay and length of service. But generally a pension is a long-term investment. Remember investments, unlike savings, can go down or up in value depending on the success of the investment - such as shares on the stock market. You will not be able to spend the money you put in now until you retire. However you do not have to pay much tax on this investment.
When you retire, the pot of money that you have built up can be used to buy a regular income in retirement, called an annuity. If you join a workplace pension scheme, money comes out of your pay packet and into a pension pot. Your employer also puts money in, and there is tax relief on all this from the government. The alternative private, or personal pension, is offered by a provider such as an insurance company, High Street bank, building society or most typically, a pension company. You do not get any contribution into this from your employer, but it may offer more flexibility over how and where the money is invested. The success of the investment and the fees charged by the provider will determine how much you get on retirement. But from 2012, the government wants all firms to offer a pension to their workers and they will be enrolled automatically unless staff opt out. If employers do not offer membership of a pension scheme, they will have to enrol their staff into the new National Employment Savings Trust (Nest) set up by the government. To be enrolled, staff must be aged 22 or above, earn more than ÂŁ5,715 a year, and have been in the job for at least 13 weeks. Pensions experts have suggested that contributions into this scheme will not be enough for people to have a comfortable old age, but the Pensions Minister Steve Webb says it will get youngsters into the habit of saving for retirement.
BASIC STATE PENSION
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7
Aviva
If you and your spouse or civil partner have paid enough National Insurance contributions, then you will both get the Basic State Pension from the Government when you reach State Pension age. If you retired today you’d get a Basic State Pension of £107.45 per week if you’re single or £171.85 if you’re married or in a civil partnership. The State Pension age is currently 65 for men and 60 for women. However, from now until November 2018, the State Pension age for women will gradually be increased from age 60 to age 65. Between December 2018 and April 2020 the State Pension age for men and women will increase to 66. Then between 2034 and 2046, the State Pension age will gradually be increased to age 68 for both men and women. The State Second Pension replaced the State Earnings Related Pension Scheme (SERPS) in April 2002. At the moment, to get the State Second Pension when you retire, you usually need to be employed with an income of a set amount each year. This may change with each tax year, so you can visit the Directgov website to find out the minimum level for this tax year. You also need to be paying National Insurance contributions. However, if you’re a carer or long term disabled and so can’t be in paid employment, you could still be entitled to the State Second Pension. You’ll find out what, if any, State Second Pension you’re entitled to when you claim the Basic State Pension. The Pension Service will normally send you the relevant forms and ask you to make a claim about four months before you reach State Pension age. For men this is 65. The State Pension Age for women will gradually increase to age 65 from between April 2010 and April 2020. Between December 2018 and April 2020 the State Pension age for men and women will increase to 66. Then between 2034 and 2046, the State Pension age will gradually be increased to age 68 for both men and women.
Aviva
Final salary scheme If you are in a salary related scheme, such as a final salary scheme, either the income you receive in retirement will be based on the length of time you have worked for your employer, or been a member of the scheme, as well as your salary. You can only join these schemes if your employer provides one – you cannot pay into one privately. The scheme’s trustees and manager make all the investment decisions for you. Final salary schemes are most common in the public sector for example teachers, nurses and local government employees usually benefit from these schemes. Some private sector employers also provide final salary schemes but recently many have closed due to the high cost of the guaranteed benefits. These schemes provide a defined amount of pension that is independent of market performance and usually adjusted for inflation. They also provide tax-free lump sums that are related to your salary and the number of years in the scheme.
Workplace pensions You are in a workplace defined contribution scheme if you join your employer’s trust-based money purchase scheme or a group personal pension arrangement (such as a group stakeholder scheme).
WORK P -
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You make regular payments during your working life. Your payments are then invested in your choice of one or more of a range of professionally managed funds and remain invested until you retire. The investment performance of the fund(s) will determine how much money you may have available when you are ready to retire. Charges and investment performance will affect the fund value. However, the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested. The money built up is used to buy an annuity or another product which provides you with an income in your retirement. Your pension income will be taxed as earned income. You can usually take up to 25% of your pension fund as a tax-free lump sum, which means you will receive a smaller pension income. Tax rules may change in the future.
Usually, your employer also pays into the scheme. If you can join your employer's scheme it's usually a good idea to do so, particularly if the employer pays towards your pension fund – some schemes are very generous. You can still take out a personal pension if you need to top up your pension fund. Unfortunately, no one can know how much your fund will be worth when you retire or how much income you will receive each month. Although saving in a bank has its advantages (you have access to the money, you will at least get back the amount you paid in and any interest, once earned, is guaranteed), it is generally accepted that investing in a pension is a more effective way of planning for your retirement. A pension scheme lets you invest in a range of funds, so your money has a chance to achieve better growth than it would in a savings account. You need to understand more about the funds to make the best choices about where to invest your pension payments. You should also talk to a financial adviser.
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KPLACE PENSION
Aviva
There are a number of different types of personal pension, ranging from stakeholder pensions to standard personal pensions to self-invested personal pensions. You should talk to a financial adviser to be certain which one is right for you. Here’s a quick rundown of the types of pension available.
Personal pensions With a personal pension, you pay money into a pension fund. In some cases, employers who don’t offer an occupational scheme may make payments into the personal pensions of employees. These plans are provided by financial institutions with professional fund managers who will invest money on your behalf so that it has the potential to grow in value. Please note the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested. When you retire you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. Tax rules may change in the future.
Stakeholder pensions Stakeholder pensions are personal pensions that have to meet certain minimum standards set by the Government, and have a maximum charge. They are designed to help people with a low income start investing towards their pension. These plans are provided by financial institutions with professional fund managers who will invest your money to build up a pension fund for you. When you take your benefits you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. However, tax rules may change in the future and the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested.
PR PE
A self invested personal pension (SIPP) could be right for you if you are experienced and confident in making your own investment decisions. It allows you to build up a fund in a tax efficient way and brings with it greater investment choice and flexibility than most personal pensions. With a SIPP, you can choose, and move between, a wide selection of funds and permitted investment types to meet your own investment goals. When you take your benefits you can normally take up to 25% of your fund as a tax-free lump sum and use the rest to provide an income. However, the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested. To find out more details and if this is the right choice for you, you need to speak to a financial adviser. Tax rules may change in the future.
RIVATE ENSION
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Self invested personal pension
National Employement Savings Trust
Government estimates suggest that around seven million people are not savingenough to give them the retirement income they want or expect. The Pensions Act 2008 establishes new duties on employers aimed at tackling this challenge whichstart to be introduced from 2012.For the first time, employers will have to enrol some or all of their workers into a pension scheme that meets or exceeds certain legal standards and may needto make a minimum contribution. NEST (National Employment Savings Trust) is one of the pension schemes employers can use to meet their new duties. Employers will need to automatically enrol workers aged at least 22 but under State Pension age who earn more than £7,475* (in January 2011 terms) in a year. These people are known as eligible jobholders and their employers will have to make a minimum contribution into the pension scheme on their behalf. Workers who are automatically enrolled into a scheme can choose to opt out if they want to. Other individuals will have the right to ask to be enrolled into their employer’s pension scheme if they want to. Depending on the worker’s earnings, their employer may also have to make a contribution. NEST is an online pension scheme and is being specifically designed so employers can provide easy access to a pension scheme for their workers. The scheme will be easy to administer. Employers can also delegate someone else to manage their participation for them in NEST if they wish. NEST members have one retirement pot that can travel with them throughout their working life. This means there will be no continuing administration for an employer when a NEST member leaves their employment. For new joiners who are already members of NEST, all contributions made on their behalf can be added to their existing retirement pot. Also, more than one employer can contribute to a member’s NEST retirement pot at the same time. This means they can contribute for workers who have other jobs, such as part-time workers.
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NEST