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					RETIREMENT                                                                                                                                     RETIREMENT




                                                                           Choose the
                                          right path
                                          Preparing well in advance for retirement will ease
                                          the process – both emotionally and financially,
                                          says Clare Gascoigne



                                          R
                                                     etiring can be a huge lifestyle change.               If you have failed to save into a pension but do
                                                     Getting it right, financially and emotionally,     have money available, perhaps through an inheritance
                                                     involves time and effort – and starting the        or maturing life policy, you may want to consider
                                                     planning process early will pay dividends.         “immediate vesting”: paying a lump sum into a
                                                        “We often find clients have a lack of           pension and immediately drawing the benefit.
                                          self-awareness about retirement,” says Ken Murphy,               The advantage is that the tax relief can give your
                   The best way           Business Development Manager at Bank of Scotland              pension pot a handy boost. It can only be done by
                   to start pension       Investment Service. “It could be just inertia, or a feeling   those aged 50 or over – but it can be done every year,
                                          of helplessness. But there is plenty you can do.”             so you can carry on building your pension pot even
                   planning is with an       For others, of course, pension planning is a matter        after you have officially “retired”.
                   assessment of your     of maximising the tax breaks – which are substantial,
                                          especially for higher-rate taxpayers. But wherever you
                                                                                                           Of course, you do not have to put your money into
                                                                                                        a pension – you may be better off investing via an
                   current position,      begin, it is planning that puts you in control.               Individual Savings Account (ISA). Again, you need to
                   including all assets      The best way to start is with an assessment of your
                                          current position, including all assets and investments.
                                                                                                        do your sums carefully; higher rate taxpayers who are
                                                                                                        likely to become basic rate taxpayers in retirement will
                   and investments        This should be done regularly by us all, whatever our         probably do better to use a pension, which will attract
                                          age; the younger you are, the more chance you have            40 per cent tax relief during their working life but only
                                          of altering your course to meet your goals. It can be         be charged 20 per cent when drawing the benefits.
                                          difficult when investments have different reporting
                                          dates, but the exercise is vital to put you in control.       HEADING OVERSEAS
                                             Next, try one of the many pension calculators on the       Retiring to the sun is often seen as a good way to live
                                          internet – try the calculator at the Financial Services       well on less, but, warns Andy Stevenson of Bank
                                          Authority website, www.moneymadeclear.fsa.gov.uk.             of Scotland International, it may not be the best option.
                                          You can play around and see the effect of different           “It’s income that sustains lifestyle, not capital; and
                                          lump sum or regular saving payments, and get a feel           currency fluctuations can play havoc with your income,”
                                          for how much you need to save. You could also have a          he says. “You can have your pension paid in sterling,
                                          look at the Government’s advice and information site,         and decide when to convert it, but then you need a
                                          www.thepensionservice.gov.uk. Alternatively, Bank of          savings buffer to cover any delays.”
                                          Scotland Investment Service offers a sophisticated                Currency is not the only consideration to retiring
                                          retirement modelling tool, designed to predict the likely     abroad. Different countries will have very different
                                          financial position you will achieve in your retirement.       inflation rates or health costs to the UK, and
                                             Even those who have been unable or unwilling to put        unexpectedly large bills could wreck your plans.
                                          away significant sums have options. “We have a lot of         Understanding the differences is critical; in Australia,
                                          clients who ‘retire’ but start working again – perhaps        for example, your state pension won’t be index-linked.
                                          only a couple of days a week, but often in a completely       Then there are hidden costs such as coming home
                                          different field,” says Murphy. “One keen gardener went        to visit family – or having a constant stream of visitors
                                          and worked in a nursery; another chap started driving         in your new home.
                                          a school bus. The income was welcome – but the                    Make sure you consider the worst case scenarios as
                                          personal benefits of being in touch with people and           well: what would you do if your spouse or partner died?
                                          having a structure to the week were the real draw.”           Do you have a fallback position in case living abroad


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RETIREMENT                                                                                                                                                                                                                                                                                  RETIREMENT

                              does not work out? Keep an eye on what’s happening              to benefit, and if the actuarial tables forecast your         that income may fluctuate, so it will help if you have
                              at “home” – if the property price differential widens, you      life expectancy at 79 rather than 85, it will make a          other sources of income. These could be a part-time
                              may not be able to afford to come back.                         difference to the money in your pocket.                       job, a guaranteed pension, or even a property portfolio
                                 Retirement can come as a huge shock to some                      “It is most likely the initial quotation from your        that could tide you over any dips in the market.
                              people. Thinking about your future early on is the
                              only way to avoid being swamped by the many, many
                                                                                              pension company will only be for a single life, level
                                                                                              basis standard annuity,” says Pacey. “The only way
                                                                                                                                                               Nor is it for life; you will have to buy an annuity
                                                                                                                                                            by the age of 75 (you can convert your money into
                                                                                                                                                                                                                                                                    CHANGING PLANS
                              decisions that need to be taken for what should be              to consider personal circumstances is to talk to a            an annuity at any time until then), although you can                                                    Walking to happiness
                              some of the most rewarding years of your life.                  specialist. The decisions need to be made in the              also convert your money to an Alternatively Secured
                                                                                              context of your overall financial planning – if you die       Pension instead. This is another type of income                                                         “We had not long moved house and had a fairly
                                                                                              there may be life policy payouts that would make a            drawdown for the over 75s but with less attractive rules                                                substantial mortgage – but the company made me
                                                                                              difference to your dependants.”                               regarding income levels and death benefits.
You have a series of decisions that could affect                                                                                                               One other big advantage of drawdown is that it
                                                                                                                                                                                                                                                                    an offer I couldn’t refuse,” says John Leiper, an
                                                                                                                                                                                                                                                                    engineering manager for Trebor, who retired 12 years
your income for the rest of your life, and the earlier                                        FlEXIblE REtIREMENt                                           can help ease you into retirement. Gone are the                                                         ago at the age of 55.
                                                                                              For most people, an annuity represents the best way           days when, as an employee, your only option was                                                            It was a worrying time, but sound advice from a
you start thinking about them, the better                                                     to provide an income in retirement. But there are other       to continue working full time or retire; now, if your                                                   financial adviser helped John and his wife Joyce make
                                                                                              options to consider for those with a larger pension pot,      employer agrees, you can go part time gradually,                                                        the right decisions. Although he had a company
                                                                                              a greater tolerance of risk – or a wish to move gradually     replacing earnings with pension income and allowing                                                     pension from his 25 years at Trebor, John says: “My
                              CHOOSING AN ANNuIty                                             into retirement.                                              both your mind and your finances to adjust to your                                                      first reaction was I would have to get another job to
                              To maximise your income in retirement, you need to                 Income drawdown, also known as an unsecured                new life over time.                                                                                     earn some money – but when you take away the
                              start learning about annuities a good six months before         pension, might provide a solution here. Drawdown                                                                                                                      expenses of going to work you can ask yourself
                              the leaving party. “It can take that long to get the            allows you to take an income from your money, while           pHASED REtIREMENt                                                                                       whether it is really necessary. In the end, we didn’t
                              relevant information from your pension company,” says           leaving the capital invested. The hope is that you will       An alternative to income drawdown is phased                                                             have to make any significant lifestyle changes.”
                              Kevin Pacey of Bank of Scotland’s Annuity Service.              end up with a larger income than if you had a simply          retirement, also known as “staggered vesting”. This is                                                     A move from Suffolk, first to Northumberland and
                                  Getting the best from your pension pot is not a             bought an annuity, but there is no guarantee of this.         effectively a series of mini retirements; technically, your                                             then across the border into Scotland, helped free up
                              simple matter. Many people end up with a patchwork                 At the outset, you can take 25 per cent as a tax-free      pension pot can be split into 1,000 segments, each                                                      some money due to the north-south property price
                              of savings with different providers, and putting it all         lump sum. Based on the remaining capital invested the         of which can be converted into an annuity or taken                                                      differential, though that wasn’t the first consideration.
                              together is no easy task. But the administration is only        maximum level of taxable income you can then draw is          as an unsecured pension, leaving the rest invested.                                                     “We moved because we do a lot of walking and this
                              part of the problem; you have a series of decisions to          about 120 per cent of the level lifetime annuity payable         The plus, apart from the flexibility, is that you can                 FIND OUT MORE                  is where the hills are,” says John. “The quality of life
                              make that could affect your income for the rest of your         to someone of your age and sex; the minimum is zero.          take 25 per cent of each segment tax free, and lump                                                     is much better – but don’t tell anyone that or they’ll
                              life, and the earlier you start thinking about them the            Drawdown has become more popular as average life           sum death benefits from the invested segments are                        EVERytHING FOR                 all move here!”
                              more likely you are to make the best choices.                   expectancy has increased and annuity rates have               generally tax-free. The risks are similar to income                      yOuR REtIREMENt                   John advises those looking at retirement to develop
                                  “The key is that you don’t have to take your annuity        fallen. It also has the advantage that, unlike an annuity     drawdown; taking segments when the market values                         • To learn more about          some key interests, and get involved. “If you retire
                              from the company that handled your pension,” says               where the income dies with the recipient, your pension        are depressed can accelerate the erosion of the capital                  any of the Bank of             with nothing to do you might as well dig your own
                              Pacey. “People think there isn’t that much difference           pot can be passed on to your heirs – albeit after the         value of your fund and you may end up with less                          Scotland services              grave and jump in it. We have always been active,
                              – but it can be as much as 15 per cent between the              taxman has taken 35 per cent of the remaining capital.        income than if you had bought an annuity at the                          mentioned in this              walking, cycling and skiing; I got involved with
                              lowest and highest paying conventional annuity.”                   But it is not for everyone. Experts agree it is only for   outset. Like income drawdown, phasing must end                           article, please call the       University of the Third Age reading and art groups,
                                  Buying an annuity is one of the few times when              those with larger pension pots, probably in excess of         when you reach 75.                                                       number below                   and Joyce sings in a multitude of choirs.
                              smokers and those with ill health benefit, because              £100,000, who are happy to continue monitoring their             You may also want to look at a new type of                                                              “It has all worked out extremely well and we have
                              a lower life expectancy means a higher annuity. Make            investment – drawdown needs to be continuously                drawdown plan that offers certain guarantees. These                      CAll                           never been happier.”
                              sure you know what illnesses might qualify for an               managed, unlike an annuity. Your pension fund will be         generally allow you to lock in to a set level of retirement              • 0870 850 8513
                              impaired life annuity; you don’t have to be bedridden           subject to normal investment risk and you must accept         income, with the potential for the income to increase if
                                                                                                                                                            the underlying funds perform well but a floor that                       FuRtHER READING
                                                                                                                                                            prevents your income falling too far if the funds                        • www.bankofscotland.
                                                                                                                                                            perform badly.                                                           co.uk
                                                                                                                                                               Generally, any flexible retirement arrangement is                     • www.moneymade

  WHEN “THIRD AGE” GETS BUSY                                                                                                                                likely to incur higher charges than an annuity, so you
                                                                                                                                                            need to do your sums carefully. And, as with any
                                                                                                                                                                                                                                     clear.fsa.gov.uk
                                                                                                                                                                                                                                     • www.thepension
  Sliding into retirement is no holiday for Robina                                                                                                          important financial decision, it pays to take proper                     service.gov.uk
                                                                                                                                                            professional advice.
  After 25 years in Toronto and a variety of       She has a small occupational pension
  jobs, Robina Hutton returned to the UK        and her partner, a painter and art
  in the early 1990s.                           teacher, still works part-time. The money                                                                     RETIRING ABROAD?
     “I slid into retirement, gradually going   is enough for their needs, and the
                                                                                                                                                              Private Banking with Bank of Scotland International




                                                                                                                                                                                                                                                                                                                                p H O tO G R A p H y: G E tt y, p HO t O lI b R AR y
  from full-time to part-time, cutting down     couple are now settled at Peebles in the
  my hours over two years,” she says. “I
  would recommend that – an hour’s
  travelling every day was pretty tiring.”
                                                Scottish Borders. Although Robina is
                                                happy to be officially retired, her
                                                volunteer work developing the University
                                                                                                                                                              M     oving abroad means a lot of decisions, but with the launch of Bank of Scotland
                                                                                                                                                                    International’s Private Banking service there’s one less to worry about – and if you already
                                                                                                                                                              enjoy the services of Private Banking onshore with Bank of Scotland, the International service
     Robina’s professional career had           of the Third Age in Scotland has become                                                                       is an excellent way of ensuring you still receive that personal service while living abroad.
  been varied: she had a spell as HR            the equivalent of a full-time job.                                                                               The Bank offers the full range of services you require for day-to-day banking, as well as a
  and training manager for a large                 “I was looking forward to retirement                                                                       range of information on all matters offshore. You can open accounts in a number of major
                                                                                                 People think you have the time to do                                                                                                                                  Get involved. If you retire with nothing
  insurance company, but also worked            enormously – there were so many things                                                                        currencies and benefit from fee-free foreign exchange. Services such as offshore mortgages
                                                                                                 anything in retirement – but I find I have                                                                                                                            to do, you might as well just dig your
  as a counsellor, market researcher,           to do I was quite lost to begin with,” she                                                                    for the purchase, remortgage or release of equity in UK properties are available via your
                                                                                                 to force myself to take a day off                                                                                                                                     own grave and jump in it
  and ended her paid working life tutoring      says. “People think you have time to do                                                                       Relationship Manager, while more complex financial planning needs can be dealt with through
  people who planned to set up their            anything, but I find I have to force myself                                                                   specialist providers. Tax, trust, investment and share dealing are all part of the service offered.
  own businesses.                               to take a day off.”



26   SpRING 2008                                                                                                                                                                                                                                                                                                        27

				
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