Many professional firms make provisions for their partners' retirement, but it's important for individuals to consider whether this will provide them with a sufficient income, says Dani Glover.
Rarely a day goes by when pensions are not in the news. Yet many people pay little attention to their own financial affairs, especially with regard to saving for retirement. When asked why, they often say that pensions have become too complicated or that pension performance has been poor, so why bother? Even when they do plan for the future, left to their own devices, too few people set aside enough funds for their retirement.
Whose responsibility?
Interestingly, Smith & Williamson's Annual Survey of Law Firms 2011 shows that more and more professional firms are making provisions for their partners' retirement. For example, a firm might withhold a percentage of a partner's profit share to invest in a pension of the partner's choice. This enables partners to plan for a comfortable retirement, but can also help firms deal with issues such as succession planning, with partners no longer needing to stay on past retirement age. However, individuals will need to consider whether the amount invested will be sufficient for their retirement and if further action will need to be taken.
There are significant tax incentives to saving into a pension plan. This is especially the case for those whose earnings are between £100,000 and £116,210 as their effective tax rate can be up to 60%.
The average pension, in payment, for an individual who has been a member of a final salary scheme is significantly higher than for someone who has made voluntary payments. Therefore, it is essential to start a pension into which regular payments are made if one is to have any sort of reasonable pension income in retirement.
Smith & Williamson's survey found that 91% of respondents believe that it is the individual partner's responsibility to get advice on retirement planning and to pay for it themselves. While firms seem to delegate this responsibility entirely to their partners, this does allow the partner to choose how much to invest and how much to contribute.
An adviser will be able to help partners calculate the level of contribution required to reach a certain level of income. The adviser will also take into account the partners' other assets, bearing in mind that a pension plan is only one way of saving for income in retirement – albeit probably the simplest.
SIPPs
Many people tend to want to spread their investment risk and so end up with a range of providers or have simply collected various personal pension plans along the way. Self-invested personal pensions (SIPPs) offer a very simple and transparent contract to amalgamate the plans, as well as having added flexibility in the way that an income can be taken.
One of the key advantages of SIPPs is the ability to appoint your own fund manager who not only invests in line with the aims and objectives of the individual investor, but who constantly monitors the SIPP in line with prevailing market conditions. Investments are made on the basis of informed decisions rather than potentially out-of-date hearsay.
The overall cost of a SIPP will not necessarily be higher than some pension contracts offering a wide range of funds with various investment houses. In addition, costs are transparent allowing the investor to see the cost of each element of the pension process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
