Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.
Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don’t allow the person to work anymore (by illness or accident) or as a result of legislation concerning their position.
In most countries, the idea of retirement is of recent origin, being introduced during the late 19th and early 20th centuries. Previously, low life expectancy and the absence of pension arrangements meant that most workers continued to work until death. Germany was the first country to introduce retirement in the 1880s.
Nowadays most developed countries have systems to provide pensions on retirement in old age, which may be sponsored by employers and/or the state. In many poorer countries, support for the old is still mainly provided through the family.
Today, retirement with a pension is considered a right of the worker in many societies, and hard ideological, social, cultural and political battles have been fought over whether this is a right. In many western countries this right is mentioned in national constitutions.
It is important that we review your pension arrangements to ensure that you are able to maintain your lifestyle in retirement.
Pensions have certain tax advantages including tax relief on contributions and tax exemptions for investments held within a pension plan.
This maybe via a Personal Pension, Stakeholder Pension, Self Invested Personal Pension or through your Employers scheme.
Rather than using one individual tax band in retirement it is always worth exploring the opportunity of using two where possible.
Even if you have no earnings, under current rules, you may still contribute up to £3,600 p.a. gross (£2,880 net) to a pension plan, and receive the tax advantages available.
You should note:
- The value of the investments that make up your pension fund can fall as well as rise, so the value of your pension fund is not guaranteed.
- Your money is tied up until you take your benefits, which is generally not permitted before age 55.
- Tax rules and legislation may change. The value of tax benefits may change and will depend on your financial circumstances. The information we have given is based on our understanding of current law and HM Revenue & Customs practice.
Decision at retirement can often be difficult due to the irreversible nature of annuities versus the investment risk and tax on death if invested in a drawdown contract.
Often overlooked by clients are the benefits of State Pension Provision, other savings and the ability to combine annuities with income drawdown in phased retirement to suit your income needs.