Best pension plans tips 2011- 2012

Best pension plans tips 2011-2012 : Suffice to say, then, if you plan to enjoy retirement, there's work to be done; a long and fulfilling life awaits many of us, but we're going to need to plan properly if we're to pay for it, pension tips to help you get – and stay – on the right track.



1. Seriously review; carefully re-plan



Retirement might seem aeons away, but that's no excuse to turn a blind eye and lapse into spendthrift ways.



If you don't know how much you've saved (via pensions, Isas, stock market investments, property etc.) then run a comprehensive review. Done on a regular basis – perhaps once or twice a year - this will help keep you on straight and narrow.



There are three essential boxes to tick before pension tinkering can begin, says Nick Lincoln, an independent financial adviser at Values to Vision Financial Planning.



First, work out when you want to retire and the income you'll need to live the retirement life you want. Calculate all your potential income streams in retirement (state pension, rental incomes, Isa investments, final salary benefits, employer pensions). Compare the two numbers. The shortfall figure should guide your action plan.



If you're not meeting your target, you'll have four main options: retiring later, saving more now, accepting less retirement income, or taking more risk to improve returns.



Steve Laird, an independent financial adviser at Carrington Wealth Management, has these top tips: 'If you have one or more existing pension plans, get a projection of what the benefits are likely to be at your chosen retirement age. If you have a company pension scheme you should be able to get this information from the scheme trustees.



'If it's a personal pension plan then write to the plan provider. Ask for a projection 'in today's money' – this will give you a much better idea of what you'll be able to buy with your pension fund.



'If there's a big shortfall between what you'll get and what you'll need then the time to take action is now – the longer that you leave it, the more it will cost you to make up the difference.



As a guide for how much to save, Alan Maxwell, a chartered financial planner at Corporate Benefits, says around 10% to 15% of your salary should be dedicated towards long-term planning - at all times.



2. Take advantage of Isas



Each year you can save up to £10,200 into an Isa (£5,100 in cash). Each year the allowance rises slightly (it's linked to inflation).Isas are simply investment 'wrappers' that shelter your cash from the long arm of the taxman. For basic rate taxpayers, this is a better saving solution than a pension (see below). The key difference with Isas is that you have access to your cash before age 55. If you're unsure which is right for you, check our Isa vs. Pension pros and cons round up.



Danny Cox, an adviser at Hargreaves Lansdown, says: 'Make full use of your Isa allowance. Less tax means the potential for much better returns from your savings and investments.'



Ian Lowes, of Lowes Financial Management, says: 'Despite the fact that Isas have been around for more than a decade, there is still a lot of misunderstanding surrounding them.



'An Isa is simply an annual allowance that everyone over 18 has to shelter some of their investments or savings from income tax and/or capital gains tax. They should be used by most investors each year in one form or another.



3. Use a pension to claw back tax



Pensions are the archetypal retirement savings product. It is more than possible to get all the way to retirement without them. But higher rate taxpayers should take note: a pension can help claw back some of the 40% or 50% tax you cough up each year.



Quite simply, the Government refunds your income tax when you store money in a pension. This is reward for being unable to use it until you're 55. Income tax is paid on the way out of the pension in retirement. But, the benefit is that you'll probably qualify within a lower income threshold – usually as a basic rate taxpayer – and so reduce your percentage liability from 40% or 50% to 20%. Additionally, you can claim a quarter of the pension pot direct as a tax-free lump sum – you'll never, ever have paid tax on this cash.



Ian Lowes says: 'Tax relief means a £1,000 contribution will cost a higher rate taxpayer just £600. The downside is that you can only have 25% of the fund back - and only once you're at least 55. The rest of the fund has to provide a taxable income (via an annuity or drawdown policy – see below).



4. Check how your pension is invested



This is one of the serious areas of concern for those already with a pension. Poor performance can leave you seriously under-funded in retirement. In particular, watch out for so-called 'zombie funds'. We warn about these at This is Money.



An estimated 11 million savers are trapped in failing pension funds that deny them thousands of pounds of yearly income in retirement.



Peter McGahan, an independent financial adviser at Worldwide Financial Planning, says: 'Make sure your money is being invested by the best fund managers. A decent investment-based IFA will know how to pick these.'



Alan Maxwell, a chartered financial planner at Corporate Benefits, says many people - particularly those with funds in very old pensions - never bother to check how their money is managed. They just presume solid returns are a given. They're not. With fund managers changing regularly and performance varying, it's a serious concern.



Nick Lincoln, independent financial adviser at Values to Vision Financial Planning recommends that younger investors with more than ten years to retirement make sure they're reaping the rewards of the stock markets.



'It's too risky to invest in anything else (risk defined here as the likelihood of your fund not growing fast enough, which is the biggest risk of all),' he says. 'Divest back out of equities as you approach retirement.'



In your 50s, you must reconsider your 'risk profile'. This means opting out of riskier investments – shares – to lock in your gains. Instead, cash and bonds will provide a more consistent return.



Chris Wicks, a chartered financial planner at Bridgewater, explains: 'If you are retiring in the next couple of years you need to start to reduce the risk of your pension fund by moving to fixed interest and cash funds to avoid the impact of a last minute stock market drop on your retirement income.



5. Cut costs with a fund supermarket



To optimise your investments to the full, steer clear of dinosaur personal pension plans altogether. Instead, try a Self-Invested Personal Pensions (Sipp). These allow you to choose exactly how your cash is invested, whether in shares, funds, commercial property or something else. Created 21 years ago for high net wealth savers, they have become far more accessible in the 21st Century.



For the majority of mid-wealth investors, a fund supermarket-style Sipp – which is simply a low-cost platform for investing in different funds – could work perfectly.



Danny Cox says: 'Use a fund supermarket to reduce costs and simplify your investments. As the name suggests a fund supermarket is a one stop shop for Isas, Sipps, funds, shares, ETFs and investment trusts.



'They buy in bulk and pass those savings onto the investor, meaning you can invest in a unit trust saving as much as 5.5% on the cost when buying direct. Fund supermarkets enable you to consolidate your investments and pensions into one simple statement, view the value at anytime on line and deal on-line from the comfort of your own home.'



Some of the cheapest fund low-cost Sipps are run by Hargreaves Lansdown, James Hay, AJ Bell's Sippdeal, and Alliance Trust. Help on finding the cheapest low cost Sipp.



6. Get the right annuity



From April, some retirees will no longer need to purchase an annuity to convert their pots into an income. It will be possible, instead, to stay invested in the stock market and draw money slowly from your pot.



But the operative word here is 'some' people. Most will still find that the secure income stream from an annuity is necessary for a hassle-free old age. Others simply won't be allowed to opt out of annuity purchases because their funds won't be large enough. More on the new rules here.



When you hit retirement, it's absolutely essential to shop around for the best annuity rate. At the beginning of 2011, a £100,000 pot typically buys a pension of just £5,500 a year for a couple. But different insurance companies vary wildly - by as much as 20% - in the sort of income they'll pay in exchange for your pension pot.



This is particularly important if your health is poor as you may qualify for an enhanced rate - sometimes a huge 30% - 40% more. This applies to smokers, too, as their life expectancy is shorter.



Peter McGahan points out that some pension plans provide 'guaranteed' annuity rates that comprehensively beat the open market options. But he warns that even then, these they aren't always the best option.



He says: 'Check whether your pension offers a guaranteed annuity. As you retire you might see this is around 8% or 9% and that looks very attractive. But when you dig deeper, you'll find that these often have serious downsides. Firstly, most don't include spouses in the terms. That means that if you die, your partner won't benefit – the payments will stop. (source www.thisismoney.co.u )



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