Cometh the Hour Cometh the Financial Adviser
Pensions like most financial products tend to be fairly complex. There is a lot to understand and even the top financial minds in the country struggle to make sense of them.
In a speech to peers, Andy Haldane of the Bank of England said:
‘To give a personal example, I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions.
‘Conversations with countless experts and independent financial advisors have confirmed for me only one thing – that they have no clue either. That is a desperately poor basis for sound financial planning.’
Mr Haldane was speaking at the New City Agenda annual dinner and was highlighting how the public distrust of banks and financial services companies was worsening. He pointed to demise of the high street branch and the banking crises recession.
‘Trust in banking had, by turns, suffered a double-whammy: first a slow puncture of personalised trust as banks retreated from the high street, then a high-speed blow-out of generalised trust as the crisis broke.’
A Brief Guide to Pensions
With this in mind here is an overview of pension products, jargon free.
Defined Benefit Pension
Defined benefit pension schemes, often called final salary schemes are often an employment based pension. Here, you pay in a fixed amount and when you retire, you claim a fixed amount every month.
Defined benefit schemes do not have to be employment based as they can include career average schemes and other methods can be used to pay into your scheme.
Defined Contribution Pension
Defined contribution pension schemes do not promise a fixed amount come retirement day, but instead as you pay into your scheme you build an investment pot. Here, you specify a percentage of your salary you want to pay in and your employer matches it.
As you pay in the money is invested in funds that have bonds or shares. As the funds grow so does the value of your pension.
Tax Relief on Pension Contributions
Everyone receives 20% tax relief automatically. If you are a higher rate tax payer, you must claim the 40% tax relief yourself. There is a tax allowance of £40,000 and a lifetime allowance limit of £1 million.
Sound Financial Advice
To make sense of your pension and any future pension, getting financial planning advice is essential. My award winning financial planning will help you understand the complexities of pensions and maximise their potential to give you a better retirement. Click here and complete the Call Back Service form. I can help you whether you work for the Bank of England or not.
Source: Daily Mail