The pensions landscape has changed

Since the start of the millennium, various developments have made it vitally important for every working adult to get a grip on retirement planning. For one thing, the State Pension Age will move further away, to 66, 67 and beyond, for both sexes. To help bridge the gap, a law change has made it hard for employers to impose a set retirement age.

This delay to State Pensions reflects the escalating cost as people in the UK are living longer. Its creators never intended the State Pension to provide a comfortable retirement for all, and later attempts to make it do so have not succeeded long term. A flat-rate pension has now been promised, but everyone knows that it won’t be enough on its own.

Stakeholder pensions were intended to help but, being optional, only scratched the surface. From October 2012, under pension auto-enrolment, employers must start enrolling virtually every employee into the official NEST scheme or another qualifying plan, and make minimum contributions, though an employee may opt out if they want.

Many final salary pension schemes have shut recently, as employers limit the open-ended cost involved, and even Government employees may see pension cutbacks. Now, there is more reliance on building up a pension pot, with tax relief, which may later buy a lifetime annuity or remain invested to provide a capped or flexible income drawdown pension.

As the UK population is weaned off reliance on State and final salary pensions, all must take more responsibility for pension provision. The tax relief makes this task all the more worthwhile for your clients, but you will be aware that limits on relief have reduced. The Annual Allowance will remain at £40,000 until 2017. The current Lifetime Allowance is £1 Million.

For some clients, these lower limits on tax relief add to the attraction of being free to organise their own pension arrangements under your guidance, with the aim of making their retirement savings work harder. The ultimate in freedom and flexibility is found in the self-invested personal pension, as this permits adjustable contributions and a wider range of asset classes than traditional pension plans.

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