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We
are worried by the extent to which people have turned away from
pensions. |
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For
seven years we have had a page on our Website entitled ‘Pensions
– Why Have One?’ (www.blythetax.com/pensionsbf.htm)
. This page has remained unchanged and still reflects our attitude
to Pensions. |
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It
is only natural to be put off pensions by a period of poor investment
returns, but part of the conclusion at the end of the Web page
is: if you opt not to invest in a pension, you should be
very clear and confident of the source of your income in retirement. |
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That’s
what worries us. People may be moving away from pensions, but
are they moving towards anything else? |
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Gross
income in retirement of around £43,000 is a good target.
It doesn’t matter where the income comes from but up to
this level (in today’s terms) you would only pay tax at
the basic rates. |
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If
this is to be funded out of a Personal Pension at the age of
65, then you should be aiming for a fund at that time of around
£700,000 - more if you have a spouse to consider. |
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This
size of fund, at today’s Annuity Rates should provide
a pension of £44,000 per annum. With a following wind,
the State Pension plus other investment income should take total
gross earnings to around the £35,000 level. Funding for
a higher pension is still desirable but the marginal benefit
is less tax efficient. |
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If
you invest in a pension over (say) 15 – 20 years, you
should generate a fund double that from similar investments
outside a pension. A period of this length, together with the
tax relief help to justify exposure to higher risk. There is
still risk, but historically, long term equity investment has
resulted in higher returns than safer alternatives. |
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This
is what Pensions and investing in equities is all about –
not looking in isolation at stock market returns and deciding
to do nothing. |
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It
is time to be tough on this; not investing for retirement may
give you an unjustified feeling of ‘welloffness’
and it could result in you becoming a burden on your family
in later years. |
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Pensions
are complex and these notes are a brief summary only. Before
taking or refraining from any action, please contact us: BlytheTax@btinternet.com,
020 8876 1097 |
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