PENSIONS - PLAN NOW FOR THAT LONG HOLIDAY How does the idea of a holiday lasting perhaps 20 or 30 years sound? No more work, just a permanent break, pleasing yourself what you do every day for the rest of your life. It sounds very enticing - and it's called retirement. The only snag, of course, is that you have to pay for it in advance. And the earlier you start paying for it, the better your lifestyle is going to be when you finally give up going to work. If you have already made adequate provision, then enjoy your forthcoming holiday years. If you have not, then you need to start taking action now as it appears that one in six of us will live until we reach 100 (Source: Daily Telegraph, December 2010). For if you don't, you are running a serious risk of outliving your savings once you have stopped working. And a number of external factors are making it increasingly vital for people to think about their retirement planning now in order to maintain their desired standard of living later in life. Take final salary schemes, for example. These schemes, also known as defined benefit pensions,were traditionally regarded as the best type of pension a worker could get. They promise to pay a retirement income based on a percentage of salary every year for life. But they are on their way out. The recession has increased the number of companies closing their final salary schemes to existing members, as well as new members. According to the director-general of Saga Dr. Roz Altman, most private final salary schemes are now closed, at least to new members if not to all and she predicts that such schemes will not continue longer term (Source: Saga Magazine, 6/12/2010). It has also been reported that the largest 200 pension schemes in the UK, all final salary schemes, could hit a combined deficit of around £140 billion within the next 12 months. With such potential deficits ahead,companies are looking to reduce their liabilities and take action sooner rather than later (Source: Telegraph, Personal Finance 1/7/2010). Private final salary schemes have become too costly to administer, not just because of the recent economic downturn but because of longer life expectancy, lower inflation, falling stock markets and an increased regulatory burden. So how much are you going to need to fund this long-lasting holiday? The simplest way to find out is to work out your magic number. This helps you calculate how much your pension fund should be to give you the retirement income you want. By taking into account all your likely living costs, calculate how much annual income you think you might need if you were to retire at the age of 65, allowing for inflation. Multiply this figure by 25 and this gives you your magic number - the retirement fund you will need based on current annuity rates. The next important step is to start planning for your retirement - and to do so now. The earlier you make a start, the easier it is to create the lifestyle you want. And in doing so, take into account that pensions still represent the best option when investing for retirement. There are more changes being introduced on 6 April this year, which will limit the amount that can be paid into a pension to 100% of salary or £50,000, whichever is lower. In addition to this, you will no longer need to purchase an annuity at age 75 which increases the flexibility around how you take your benefit. But whatever choices you make, do take action now. We are living to a greater age and retirement is going to last longer in the future. As a result, it is essential to save more. The decisions you make today will help determine the standard of living likely to be enjoyed in retirement. But the longer you leave it to take action, the more expensive it will be to catch up. Whatever your stage of life, it is important to receive expert and professional advice on your pension requirements. The role of a specialist retirement planning adviser is to help you understand the need to approach retirement planning as soon as possible and to gain a better understanding of the various opportunities available. To receive a free guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, produced by St. James's Place Wealth Management, contact John Ward of John Ward Personal & Corporate Wealth Management a Partner in the St. James's Place Partnership on 01619808006 or email [email protected] or complete the enquiry form on his website www.sjpp.co.uk/johnward