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10 top tips - maximising your pensions fund

Financial consultant Justine Roberts offers a 10-step guide to planning, assessing and managing your pension

Financial consultant Justine Roberts offers a 10-step guide to planning, assessing and managing your pension



1 Start your pension planning early. For every five years of delay in funding for a pension, future premiums will be doubled. Eventual benefits depend just as much on the time invested as on the amount invested. Pension shortfalls should be addressed as soon as possible to allow all options to be considered and informed decisions made as to the best way forward.

2 Build your planning on a sound base. The NHS pension is one of the best schemes available, providing a pension and a lump sum at retirement, along with spouse and dependent benefits. These form the foundation of pension planning, but alone are unlikely to be sufficient to provide an acceptable income in retirement. So there are important decisions to make when considering how best to boost your pension.

3 Consider the options available to you. Pension planning can take many forms, from buying additional pension benefits through the NHS, personal or stakeholder pensions; investing in property or using other investments; to the eventual sale or rent of the practice. Look at your personal circumstances to decide what is right for you and take independent advice.

4 Review your pension regularly. Calculate your existing provision at least annually or more frequently if your circumstances change. Income, family life, personal requirements or legislation all change, so it's important to ensure that plans in place remain appropriate. Compare the charges and performance on your existing pension with its competitors, as charges have reduced over the past few years, so keeping abreast of how competitive your pension is within its peer group and sector is imperative to ensure that your investment stays competitive.

5 Reassess your contributions into the pension. It is best to apply to increase your contributions at outset by RPI or 5% per annum, as this helps keep it real and in touch with inflation. Whether you contribute on a monthly, yearly or on an ad-hoc lump-sum basis, contributions should be increased in line with earnings. This alone may not be sufficient to help achieve the fund you require at retirement, and further reviews should always be carried out and contributions amended accordingly.

6 Diversify your retirement funds. Don't put all your eggs in one basket – use different forms of investments. Retirement planning doesn't have to mean placing money exclusively into pensions. Pensions do provide the most tax-efficient route to retirement, but are not without restrictions. Investing in ISAs, unit trusts or long-term savings plans may not give the same tax benefits at outset, but are generally tax-free at retirement and allow greater access to capital than a pension. Investing into the stock market can be risky due to its volatility, so spread this risk by investing into different investments, funds and assets.

7 Look at the tax implications, both at the time of contribution and in retirement. Consider both your own and your spouse's tax status now and in retirement to see who has the greater tax benefit. This will help decide in whose name to make your investments, to make best use of your tax status as a family unit.

8 Consider equalising your pensions. Often a spouse's pension provision is insufficient – and in any case, providing a spouse with their own pension gives them some financial independence in retirement. But on the other hand, adding spouse's benefits onto personal pensions can be very costly and have a serious impact on income received, especially if there is an age gap.

9 Be realistic about what you can afford and what you need to set aside. It is often necessary to invest 15% of income or more to enjoy a financially secure retirement. NHS pension contributions for GPs range from 5% to 8.5% depending on pensionable income.

10 Manage your expectations. If you can't retire when you want to, aim to retire later – or change your expectations of what you can achieve based on your existing planning. Remember the normal retirement age for the NHS pension scheme is 60.

Justine Roberts is a director at Pulse Financial Consultants.

Case studies

A married 30-year-old full-time GP, in his first practice as a partner, wishing to retire at 60. He has no career breaks planned.

The purchase of additional pension benefits from the NHS is significantly cheaper at this stage as payments can be made over a maximum of 20 years. The maximum that can be bought is an additional £5,000 per annum for a monthly cost of £258. However, this is unlikely to provide the additional income required in retirement.

Further investment should be made into a personal pension plan or investments to help boost benefits. Investing £150 per month for 30 years will provide an income in retirement in addition to this doctor's NHS pension in the region of £10,900 a year.

A 42-year-old salaried female GP with 10 years' service, who has taken eight years off to start a family. She is now part-time, earning £45,000.

This doctor will have a much lower pension in retirement and will need to increase her provision considerably to account for the shortfall.

Assuming she retires at 60, then only 28 years' service will be accrued in the NHS, providing an income of about £16,000 per annum.

The purchase of a maximum of £5,000 per annum additional pension through the NHS for a monthly cost of £434 is one option to bring the expected pension up to 50% of pre-retirement earnings.

Investing into a personal pension plan should also be considered for those who require flexibility of their contributions, a greater income or have more of a budget to invest. ISAs should also be considered if access to capital is a greater priority than an increased income.

A late entrant to the NHS pension scheme who has joined in his 40s.

Joining at 44 will leave only 16 years until age 60, so retirement at 65 instead is almost inevitable unless large sums can be invested regularly.

Personal pension planning is the only route that will allow sufficient contributions to be made. If feasible the entirety of annual taxable earnings can now be paid into a pension and receive full tax relief.

With 21 years to go until retirement, investing in equity funds makes sense as the investment will be in place long enough to cope with shorter-term fluctuations in value.

A 55-year-old GP who earns £120,000 and qualified at age 24, but who has not done any additional pension planning.

Retirement options now become more limited. In probability retirement will have to be postponed until age 65, if an estimated NHS pension of £36,000 is not sufficient to allow for retirement at 60.

It is never too late to plan for retirement with the eventual income received depending both upon money and time invested, meaning very high contributions are necessary to make a significant impact.

An investment into a personal pension plan of £1,000pm actually costs £600pm due to the tax relief claimed, and could provide an income of £4,400 per annum at age 60.

Claiming higher-rate tax on your pension contributions and then paying only basic rate in retirement provides an added bonus.

Justine Roberts of Pulse Financial Consultants Justine Roberts of Pulse Financial Consultants TO CONTACT PULSE FINANCIAL CONSULTANTS




Pulse Financial Consultants can be contacted by clicking the image above or by email at enquiries@pulsefinancialconsultants.com

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