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.
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.
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
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.
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