Learning Material Sample

Retirement planning Demo

1. Assessing retirement planning needs

In this section we look at the concept of pensions in the UK, and how the Government provide incentives to people to make adequate provision.

The concept of pensions

Before we start to look at pensions in detail, it is useful to understand why pension planning has grown in the way it has in the UK.

The basic concept of a private pension, whether it be taken out individually or as part of an employer’s scheme, is to save for re...

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... “legacy issues” that advisers will need to be able to address when assessing client needs and taking into account any existing provision that may be in place.

You will also need to understand that although we now only have one regime, there are still several types of pension scheme available to individuals whereby benefits are built up in different ways. As we run through this course we will discuss the features of the main types.

In this section, we introduce the three main types of pension provision that are available in the UK namely, State arrangements, occupational pensions and individual pensions.

State pensions

State pension schemes have developed over the last century to the extent that we now have individuals who are often eligible to receive more than one type. State pension benefits are built up in accordance with your work record and your national insurance contributions (NICs).

The main types are below:

Basic state pension (BSP) – a flat rate scheme based on NICs credited over the individual’s working life. If insufficient NICs have been paid, the individual could receive a BSP lower than the flat rate, or even not be eligible at all.

State graduated pension scheme – an additional State pension payable to employees only and based on NIC contribution rec...

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... A-Day terms.

There are also cash balance plans , which are like defined contribution schemes in that benefits are based on the contributions paid into them. They also provide a promise however, for each member at their retirement. The promise may be based on a minimum return on contributions or a specified pension at retirement.

Individual pensions

Individual pensions are money purchase based with the plan holder often being the primary contributor. Certain plans introduced in recent years allow the employer to also contribute.

All defined contribution pension schemes whether occupational (trust based pension schemes set up by an employer) or individual (contract based pension schemes set up by an employer or an individual) will be based on payments made into the arrangement and the underlying investment performance of the fund. They are therefore not guaranteed.

In this section, we discuss the main needs that individuals have at and after retirement and consider how they can be accounted for.

Clients needs at retirement can be determined by a number of factors. Listed below are the main areas that need to be discussed:

When the client wishes to retire

By discovering when exactly the client wishes to retire, the adviser can determine how retirement planning fits in with other needs and help prioritise it. Individuals of a younger age bringing up a family for example, may have ot...

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...ssion with the client you find that his or her spouse has adequate provision of their own already.

Other requirements

As well as making adequate provision in retirement to meet their regular expenditure, clients may have other needs and desires. For instance, the client may want to ensure that as much of their accumulated pension fund is passed on to their estate’s beneficiaries in the event of death. Equally, they may wish to incorporate retirement planning alongside other needs such as the provision of long-term care.

In this section, we discuss how any existing pension provision can be determined.

Existing State provision

A client’s State pension provision can be determined by obtaining a State Pension forecast from the Pensions Service of the Department for Work and Pensions (DWP). This forecast will take into account what has been accrued so far and what might be earned between now and State pension age. It will also give details of how benefit...

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...ower rate can be used if the provider feels 7% will overstate the potential investment returns from the fund)

Inflation rate of 2.5% per annum to convert returns into real terms

Assumed annuity rate to convert fund into an annual pension

Annuity rate assumes indexation with RPI and a 50% spouses pension where the member is married or in a civil partnership

Pension figure illustrated is before any pension commencement lump sum is taken.

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