When You Get Older, Losing Your Hair

Imagine being waited on hand and foot by a team of fit handsome young men or beautiful young women, for your every need. Restful surroundings, plenty of company. Highly trained and attentive staff with their only desire to make you happy.

Forget holidays on tropical islands, Mediterranean cruises and second homes in the sun. When you finish working, the future is a Gay retirement village solely for the benefit of the older gay. Good food, comfortable surroundings, plenty of shopping and of course an over 60's disco on Saturday nights.

It's all well and good dreaming about such luxury, if it did exist when you retired, how would you pay for it all?

The facts are, that the amount of retired people are growing, less people are working and in turn less National Insurance contribution funding state pensions. All the 'NI' that is paid in this week is paid out next. There is a possibility that state pension could even disappear in the future.

The best advice is to take things into your owns hands, it's never to early to start planning for your own future. After all if you don't start saving for yourself then nobody else will. 

The government is so keen that we save for our own futures they give us incentives to save in the form of tax relief. Schemes designed specifically for retirement planning can provide a highly tax efficient form of saving.

Personal Pensions

Personal Pension Plans are savings schemes available to employees or the self employed. They allow accumulation of capital in the years leading up to your pre selected retirement age. You must take the benefits from this type of scheme between the ages of 50 and 75.

Even though you normally commit to a specific retirement age. Most market leading pension companies will allow you to take early retirement without penalty. Make sure the pension contract you commit to makes allowances for this.

At retirement you will have a pot of money containing your contributions plus any growth. The options you will be faced with will allow you to exchange this money for an ongoing income or a Tax free lump sum plus a reduced level of income. Most people use the latter route as lump sum capital would be taxed if left in the fund and taken as the additional income. 

Self-Employed Personal Pensions

The self employed pay contributions at a gross rate and claim tax relief at the end of the year. Tax relief is claimed at the individuals highest rate of tax paid in that current year.

Personal Pensions for Employees

Plan holders who are employees pay contributions net of tax. Tax relief is then added to the contribution as it enters the fund. Again this is at the individuals highest rate of tax. If you are an employee you should always explore company schemes first. They are most likely to offer incentives to join. They are not only likely to match your own contribution but may also offer death in service life cover free of charge.

For both styles of Personal Pension Plan there are maximum annual limits that can be contributed to the fund. For your individual limit why use the Pink Tax Facts. 

Stakeholder Pensions

During the early part of 2001 the government are going to introduce a new type of pension plan. The 'Stakeholder Scheme' will be designed to encourage employees to save for retirement.

The target group for this new plan will be individuals earning between £9,000 and £18,000 per annum. The principles adopted will aim to lower the cost of pensions, make them simpler, and make it obligatory for a company employing five people of more to offer pension provisions. It is unlikely for compulsory employer contributions will be introduced.

The introduction of Stakeholder is to offer everyone access to good value pension arrangements. Schemes will be designed to CAT standards offering low costs, easy access and fair terms.

The official line is that delaying contributions now in anticipation of this new scheme could seriously damage your wealth. If you fall within the target group and if you're planning to take pension arrangements between now and early next year – choose a scheme that offers the option to switch to a stakeholder without penalty.

Watch this space for further news of the new rules as they are announced. 

Director Pension Schemes

If you are a Director of a Limited Company you should check out Executive Pension arrangements before you start your 'wealth creation scheme'.

The advantages of specialist director schemes include the ability to pay higher contributions than personal pensions along with larger potential for tax free cash at retirement. You should become a trustee of the company's pension scheme in order to influence important decisions in the future (such as early retirement).

Contributions are calculated in order that final benefits do not to exceed the maximum of 2/3rds of your final salary. Up to 1.5 times your final salary can be taken as a tax free lump sum.

It is common practice for contributions to be paid from the Limited Company to aid tax avoidance. As the amount of the contribution is not paid to the individual as remuneration or salary, income tax and national insurance is saved.

Company Pension Schemes

As already mentioned in this section employers are likely to match your personal contributions into their own pension plan. This is commonly overlooked by employees as part of their benefits package. You could lose out on thousands of pounds if you don't join and should see this as part of your salary. Contributions must not exceed 15% of your salary on an annual basis.

Early retirement is not as easily obtained when a member of a company pension scheme and is normally at the discretion of the trustees. Conditions within the labour market are more likely to assist their decision rather than any other factors. (i.e. A shortage of trained staff in your field could effect your prospects of an early retirement).

Main Scheme Types

Defined Benefit Schemes

These schemes are normally based upon an accrual rate and as suggested by the title the potential benefits are known at outset. A common fraction used is1/60^th. This means you will receive 1/60^th of your salary for each year you work. The maximum retirement pension you can attain is 2/3rds of you final salary. In order to do this you would have to work 40 whole years. 

Money Purchase Schemes

Money purchase schemes are different as the contribution is defined not the benefits. An increasing number of companies are beginning to switch to this method as they are less expensive to administer. The pension you receive is based upon the amount of contribution you make and the growth that is attracted. At retirement you are able to use the accumulated fund to purchase an ongoing income. This is not dissimilar to a personal pension plan. Unlike personal pensions the tax free lump sum is calculated in a different way. This can not exceed 1.5 times your final salary.

Nominate Your Partner!!!!

Please remember that it is not guaranteed that a same sex partner will receive dependants benefits upon your demise. Check your company pension schemes attitude towards your partner before you join. If you are buying a personal pension plan you should choose a provider that is going to abide by your wishes.

If you already have a pension scheme you should revisit your wishes and check that they are taken care of! 

How?

If you have a company or a personal pension you should have already complete the nomination of beneficiary form. If you haven't, then do so now! This acts as an expression of your wishes and indicates to the plan manager who you want to benefit.

As an extra safeguard you should also make a will detailing exactly who should get what from your estate. Clearly label who the pension fund is to go to. Specifically exclude any past skeletons they have been known to contest estates and win. If in any doubt seek specialist legal advice through one of the many gay solicitors. 

Subscribe to the Pink Finance monthly newsletter and keep abreast of what's new on the site by clicking here. Your address will not be shared with any third party and you may unsubscribe at any time.

©2001-2002

Please note that the articles contained within this site were written for Pink Finance and are subject to copyright. They may not be reproduced in any form without prior written permission from the editor. Graphics/images/logos and site design are by John Myers and remain his copyright. Likewise, they may not be reproduced in any form without prior written consent.