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Finding the Best Pension Plans For you

Richard Beardsworth Pension Expert

By Richard Beardsworth.

Independent Financial Advisor

More Reading on Company Pensions...

Most of us will reach that point in our lives when we eventually stop working. Although the idea of retirement is fairly new in terms of world history, it is now an established part of UK culture. Therefore, planning for one's retirement is essential. Proper planning ensures a pensioner has sufficient income in retirement; improper planning leads to insufficient income and having to rely on others.

At the heart of retirement planning is the pension. For years, UK workers have been notoriously lax in pension saving, but things are starting to change with a new emphasis on retirement planning and pension freedom. Today, the average worker now finds him or herself looking around to find the best way to save. Perhaps you are also hoping to find the best pension plans that fit your circumstances.

The most important thing to remember is that it is never too soon to begin putting away money for your retirement. By the way, it is never too late either. Putting away money for the future is always a good idea regardless of your circumstances. Doing so wisely starts with a bit of self-education.

Retirement Income Options

The place to start is knowing what your retirement income options are. As previously stated, the basis of modern retirement planning is the pension. Auto-enrolment has seen to that. With the majority of UK workers now being automatically enrolled in an occupational pension, most of us already have a good start in place. Other sources of retirement income include:

  • State Pension – Paying into the state pension system through National Insurance contributions entitles workers to receive state pension payments in retirement. Those payments will not provide all of your retirement income, but they will be a nice supplement to your occupational pension.
  • Insurance Payments – If you are invested in a whole life insurance policy, you may be entitled to receive some income in retirement. If not, your beneficiaries will receive the entire value of the policy when you die.
  • Savings – Although savings are not recommended as a high return investment, you can earn some money by keeping an account open. Savings accounts are considered a very safe investment over the long term.
  • Bonds – Bonds were a popular investment choice a few decades ago. For many investors, their bonds are now coming to maturity at the start of retirement. They are as stable as savings with a slightly higher return.
  • Other Investments – Some pension savers also put money into additional investments that may include stocks and shares, property, precious metals, collectibles, and so on. Each of these investments hopefully provides a significant return that can contribute to retirement income.

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We say that the occupational pension is the heart of retirement planning because it is the most dependable source of retirement income. Pensions are generally low risk, virtually guaranteeing at least some retirement income. The introduction of pension reform in 2015 made the occupational pension even more attractive by offering greater flexibility.

Choosing the Right Kind of Pension Plan

All of the best pension plans out there offer their members a reasonable return with minimal risk. The key is to find one that suits your retirement plans. As a UK worker, you are likely to be involved in a workplace pension sponsored by your employer and made available through auto-enrolment. However, please remember that although auto-enrolment will not be fully implemented until the end of 2018, your company's staging date may not yet have arrived.

Having said that, you are not required to participate in your employer's workplace pension. You can choose to opt out for the purposes of investing elsewhere, or to not invest all. It is your choice. We highly recommend you elect to participate in your employer's plan to whatever extent you can.

Outside of the workplace pension, you have other personal pension options:

  • Stakeholder Pension – A stakeholder pension is a defined contribution scheme that you purchase independently from an insurance company or specialist pension provider. These tend to be similar to workplace pensions in terms of manageable risk and decent returns.
  • SIPP – Also known as the self-invested personal pension, the SIPP is a defined contribution scheme you control entirely. You have an administrator to conduct transactions on your behalf and, in some cases offer advice and planning. But for the most part, you make all the decisions on your own.
  • AVC Pension – The additional voluntary contribution pension is a secondary pension you contribute to above and beyond your primary plan. Some AVCs are set up by employers alongside their primary occupational pensions; others are established by individual workers of their own accord. The latter AVC is also known as a free-standing AVC.
  • QROPS –A QROPS pension is a particular kind of scheme intended for pensioners planning to retire overseas. Such plans must be approved by the UK government to be eligible for transfer. Thus the name 'qualified recognised overseas pension scheme'.

As you can see, there are lots of options for pension saving. Making your choice is one of understanding what the best pension plans offer and how these pertain to your retirement goals. You might want to work with a certified financial advisor to establish both objectives and a reasonable plan for achieving them.

Things to Consider in Retirement

Even the best pension plans on the market will not help if you do not make your decisions based on your goals and circumstances. That is why the advice of a financial advisor is invaluable. The financial advisor is a trained professional who knows what to consider for every aspect of retirement planning.

One of the first things you will want to consider is how much income you wish to have during retirement. Perhaps you wish to continue enjoying the kind of lifestyle you enjoy today. If so, that may require a substantial retirement income to work alongside what you receive from the state pension.

You should also consider:

  • Future Debt Load – Carrying substantial debts into retirement is a good way to limit what you can do with your income. Do your best to eliminate debt now; what cannot be removed immediately must be considered when determining how much retirement income you need.
  • Insurance Policies – If you do not have life insurance in place, you will need to set aside at least some money to pay your final expenses. It might be better to purchase insurance rather than have that money come from your retirement income.
  • Your Survivors – An important part of investment planning is to decide how much, if any, you want to leave to your survivors after you die. Since pension reform, investing in a pension represents an excellent way to leave financial benefits to your spouse or surviving children.
  • Property Holdings – Property is one of the best assets you can own at the point of retirement. Having a home that is fully paid for provides your housing without any additional expenses above and beyond maintenance and utilities. If need be, a home can be sold in order to generate additional income.
  • Health Concerns – Your health will play a big role in your quality of life in retirement. Good financial planning takes into account the potential for declining health and subsequent costs that are not covered by the NHS.

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Sitting down and honestly assessing your circumstances should be helpful in determining how much income you want in retirement. The Money Advice Service can help further with its free pension calculator. Their calculator can give you a basic idea of what to expect in retirement based on your current circumstances. If it appears your income will be insufficient, it will also give you suggestions for improving your position.

Your interest in learning about the best pension plans is both good and admirable. Do not let that interest wane by putting off financial planning for the future. The sooner you get started, the better off you will be in retirement.

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