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Pensions and your will

What happens if I die before I retire?

If the unimaginable happens and you die before you start to receive your pension, you can normally be assured that the pension will automatically transfer to your surviving widow, partner or civil partner. This will be made clear in your pension paperwork along with details of how this will work in reality.

It is important that you inform your pension provider as to who you want to benefit from your pension upon death, as such a simple form can be completed and will remain registered with your pension provider. It is highly advisable to complete this as early as possible as this can mean payments can be settled much more quickly.

If you prefer, you may be able to set up your own individual trust, so that we pay any lump sums to trustees appointed by you. We can provide you with a trust form or you can use your own - we'll need to see the original or a certified copy of the completed trust. We recommend that you see a solicitor before setting up a trust.

What are fund units?

The way in which the majority of pensions work is that your funds are placed into the overall pension fund account held with your pension provider. To generate a higher return than your initial investment, this money is then used to purchase shares, however as the saying goes ‘don’t put all of your eggs in one basket’ the account is split into a number of fund units. Each unit is ranked from having a low to high risk, this is how investments can go down as well as up.

What if you have an existing pension?

It is quite normal to have more than one pension plan, this may be because you have changed employers over your working career and paid into their own specific pension schemes. In addition you may have sourced your own private pension scheme to supplement your existing scheme or to be used as your main pension fund. If you fall into this bracket, you have a number of options, you can continue with your existing schemes and upon retirement have a number of smaller pension payments or alternatively consider a stakeholder pension which will consolidate your current plan into one new plan. It is advisable to speak to a financial advisor if you are considering consolidating your pension scheme.

What would you get from the State Pension?

At present, if you have no private pension scheme in place, upon retirement you will receive a basic state pension. At present this is around £90.70 as a single person and £145.05 as a couple, per week.

There are a lot of discussions a present over the future of the state pension, over time it is envisaged that the current scheme will change dramatically and everyone could be made to pay into a private or government scheme.

It is therefore advisable from the earliest stage possible to start considering your future and to consider the amount you would require to live the retirement you had hoped for.

What does pension drawdown mean?

Pension drawdown is the process of buying annuity from your pension scheme from the age of 50, as from the 1st January 2010 this minimum age will increase to 55.

Pension drawdown allows you to take tax free money and an income from your pension fund from the age of 50 up until you reach 75. The money that remains in your pension fund will continue to remain in your pension fund and will provide you with your retirement pension. The maximum you can take from your pension scheme is 25%.

The pension drawdown option could be a great opportunity to release funds from your pension scheme which you require to perhaps pay off your mortgage or have some money in the bank for holidays or a new vehicle. By taking a cash benefit will undoubtedly mean your final pension payment will be less and this could mean you no longer receive a retirement lump sum. It is advisable to discuss with a financial advisor all aspects

Pension Drawdown - Advantages

• Access to tax-free cash immediately
• Flexibility to vary your income according to your requirements
• Control the level of income tax you pay
• Control of your investment
• Funds benefit from investment growth in a tax-efficient environment
• Choice not to purchase an annuity
• Option to convert to Alternatively Secured Pension at 75

Pension Drawdown - Disadvantages

• Future investment returns are not guaranteed and the value of the pension fund may fall which could result in a lower total income than if an annuity was purchased at outset
• Annuity rates may be lower in the future and the eventual annuity may be lower than the annuity that would have been available at outset
• High withdrawals of income may not be sustainable during the income withdrawal period and may also reduce the amount of any potential annuity
• The higher the level of income withdrawal chosen, the less that may be available to provide for dependants, particularly when the original fund is small and/or investment returns are poor
• Increased flexibility brings increased administration costs. Charges are likely to be higher than those relating to the purchase of a conventional annuity and may increase in the future

The different types of pension

What are the benefits of the different pensions?

When it comes to pensions there are a range of different options for you to choose from, each have their own benefits and disadvantages. The most common pension schemes that are available are:

State Pension – This is the basic pension available to anyone who has enough National Insurance Credits. This option provides a minimum scheme that will allow you to provide for yourself when you retire.

SERPS - State Earnings Related Pension or second state pension SERPS is paid on top of the basic pension and is based on your earnings from 1978 to 2002. All employees have to contribute towards additional pension unless they make alternative arrangements by contributing to an occupational or personal pension scheme which is contracted out of additional pension.

Occupational Pension - Occupational pension schemes are designed to provide pensions and life assurance benefits for employees, these schemes can see a range of benefits, including lump sum payments and a good level of employer contributions.

Personal Pension - Anyone can take advantage of a personal pension scheme, these schemes are provided from such institutions as banks, building society’s, life insurance firms and financial regulated organisations.

Stakeholder Pension - This type of pension is very similar to a personal pension scheme, the main difference being it can offer a greater degree of flexibility. A stakeholder pension scheme can be offered by your employer of financial institution.

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