High earners can feel hemmed in by continued tax raids pension savings, but by thinking outside the box they can find ample tax-efficient routes maximise their retirement savings.
Retirement planning is a top wealth management priority for affluent individuals and there are many really useful tools you can use to check the viability of your plans, explains Lee Goggin, co-founder of findaWEALTHMANAGER.com.
A large proportion of findaWEALTHMANAGER.com’s users come to the site because they are seeking help with their retirement plans. Pension planning needs are consistently cited by a third of our users now, rising from a fifth in 2014, and of all those requesting wealth planning assistance over the second quarter of this year 26% were explicitly seeking to either transfer an existing pension or set a new one up.
Retirement planning has of course always been a top priority for high net worth individuals, but the recent changes made to the UK pensions regime have introduced a number of complications which have prompted many more people to get professional advice.
On the positive side, new freedoms will give savers more choice about how and when they deploy their retirement pots, removing the necessity to purchase an annuity. On the negative side, the lifetime contribution allowance limit has been slashed from £1.25m to £1m – a reduction which will mean that many more affluent investors will be at or approaching a “full” SIPP and therefore in need of alternative savings routes.
There is no mistaking the importance of proper retirement planning and getting professional investment management and tax advice. People are now living longer than ever and so have to build up a sufficient pot to allow them to sustain their desired lifestyle for perhaps decades after retirement. Next comes the tricky task of managing pension investments in such a way that they deliver the desired mixture of income and growth, which could change dramatically over the years, and minimising tax liabilities too.
There are a wealth of online tools available to help you get a clearer picture of where your retirement savings stand – and therefore how viable your wider plans for life post-retirement are – and here we’ve rounded up a selection what we see as some of the best pensions calculators around.
Working out how much income all your pensions will eventually generate is a vital first step in finding out whether you have accumulated a large enough pot to sustain your lifestyle and fulfil your broader financial plans. If you are some way off retirement these calculations could be a vital wake-up call to increase your pension contributions to make sure that the power of compound growth is maximised over the years you are saving.
This tool creates a through-view of all your pensions as they stand today and the income they are likely to produce. It also allows for you to adjust your inputs to see possible ways of ensuring your retirement income is not lower than the level you require.
We all know that starting to save as early as possible is one of the most powerful ways to build your retirement pot. Such is the power of compounding that (with gains reinvested) even a modest amount can grow to become a very significant sum over the years. Even those who are closer to retirement can still have a lot to gain by increasing their contributions to their pension pot, however, and it may be that a relatively small uplift makes all the difference longer term.
This tool calculates how large your pension pot is likely to be at the point you want to access it and allows you see how much of a difference to your eventual financial position any additional contributions could make.
The prospect of running out of retirement income – particularly when there is the possibility of having to pay for long-term care – is a real source of concern. But nor is it desirable to stint oneself and not enjoy retirement’s pleasures. Therefore it is a very sensible to get a clear idea of how long your SIPP will last in a range of scenarios, comparing best and worst cases over a variety of periods.
This tool simulates thousands of investment market scenarios to project how long it is likely to take for your SIPP funds to become depleted. It will deliver a verdict on how likely your portfolio is to last 30 years – a timeframe which may seem ambitious but is actually increasingly realistic as average lifespans grow.
The pension reforms have removed the need for retirees to purchase an annuity with the bulk of their retirement funds. However, many people desire the security of having a fixed income and the annuities industry has been working hard to come up with better deals to make this option an attractive one again.
This tool will guide you through a series of simple questions addressing the amount of funds you will have available, the period you would like an annuity to last and your health profile, before allowing you compare a range of competitive quotes.
Affluent investors will invariably have a SIPP and possibly also a company pension too, but that does not mean that the State Pension should not form part of their calculations. The current maximum state provision is around £6,000 and while this will not form the centrepiece of your plans it will still need to be taken account of, particularly from a tax perspective. Under the new rules, those accessing their pension monies will have to be very careful about slipping into a higher income tax band since withdrawals after the first tax-free 25% will be taxed at individuals’ marginal rate.
This tool gives an estimate of the State Pension you will be eligible for once you have reached the applicable age (which may or may not be full entitlement, depending on your contributions). This State Pension age currently stands at 65 for men and 62 for women (63 from 2016), but will rise to 66 for both sexes from 2020 and further increase to 67 between 2026 and 2028.
(Disclaimer: the tools cited above are produced by third-parties and are intended for illustrative purposes; findaWEALTHMANAGER.com can take no responsibility for their accuracy and we would always recommend taking professional advice.)