PLANNING FOR RETIREMENT

Decisions about saving for retirement are amongst the most important financial decisions anyone can make. Everyone needs money to live on when they retire, but few people think enough about long-term savings.

Can I afford not to save for retirement?

The question should not be ‘Can I afford to save for retirement?’ but ‘Can I afford not to save for retirement?’

Sensible planning for your retirement is not simply a matter of putting money into a pension plan when you feel you can afford to. It is likely that to provide for a comfortable retirement you will need a structured, long-term plan with a number of elements, from traditional pension savings to specialised investments. However, your plan must be flexible enough to adapt as your retirement intentions change.

It is easy to contribute to the Money Purchase Section of the Kingfisher Pension Scheme if you are not already a member. As contributions are deducted from your pay before tax, you receive tax relief at your highest rate.

The longest holiday of your life

Retirement is often described as the ‘longest holiday of your life’ - and you would never consider going on holiday without any spending money, would you? But that is exactly what thousands of people do.

They work hard for years only to find that, when they cease employment, they have much less money to live on than they would like - sometimes, a lot less than they actually need. There are a number of good reasons why this is the case. For example, many people grew up thinking the State would provide them with a decent pension. Or maybe they thought that retirement was a long way off into the future, or they would win the lottery before then. For most of us, this simply is not the case.

How much money will I need in my retirement?

You will probably want to plan on retiring with an income that is a relatively high proportion of the earnings you were used to before retirement.

Some costs of living, such as mortgage payments and taxes, are usually less in retirement. However, you will also have more free time and your pension in payment will probably not increase as quickly, each year, as your earnings do now.

Therefore, aiming for a relatively high proportion of your final earnings as a pension is usually a sensible course of action to take.

The chances are that, unless you are well off financially, you will need a pension because:

• You will need money for your increased free time.
  
• More people are living longer – your retirement could make up a third of your life.
  
• More people are taking out larger mortgages, later in life. You may not have paid off your mortgage when you retire.

Your annual Benefit Statement and Combined Pension Forecast will give you an idea of the amount of income you are likely to retire on.

Relying on the State Pension alone is unlikely to guarantee a standard of living you would like when you retire.

Could you live on £12.03 a day? This is the current full basic State Pension for a single person (£84.25 per week) Whilst you may be able to top up this with means-tested benefits, so you get £114.05 a week, or over £16.29 a day, this still isn't much to pay for everything. Furthermore there is no guarantee that means tested benefits will be available from the State when you retire. The maximum savings credit part of the Pension Credit will be frozen from 2015 which will reduce the number of pensioners eligible for means-tested benefits.

That's why you may want to think about supplementing any State Pensions you get with saving and investing - either in extra pension plans, savings schemes or share-based investments, or a mixture of all three.

Assess your retirement income

The starting point for any retirement planning is to assess how much income you expect to receive after you finish work. Your retirement income might come from a number of sources:

From the Government…

• The basic State Pension
The current basic State Pension is £84.25 per week for a single person and £134.75 per week for a couple. It’s currently payable from age 65 for men and age 60 for women (rising to 65 between 2010 and 2020). To receive the full basic State Pension you must have paid, or be treated as having paid, National Insurance Contributions for sufficient qualifying years.

• State Second Pension (S2P)
This was previously known as the State Earnings Related Pension Scheme (SERPS). Employees with earnings over a lower limit build up entitlement provided they aren’t contracted out of SERPS or S2P through a private pension plan. Earnings over an upper limit don’t count for SERPS or S2P. The rules governing S2P are complicated, so it’s difficult to work out what you’re entitled to. But help is at hand – your annual Benefit Statement contains a State Pension forecast. Alternatively, the DWP’s State Pension forecast service will calculate your expected State Pension.

If you’re a member of the Final Salary Section of the Kingfisher Pension Scheme you will not build up S2P whilst a contributing member, but you will build up S2P if you are a member of the Money Purchase Section.

• Pension Credit
This was introduced in October 2003, and although it isn’t really a pension, it guarantees everyone aged 60 and over an income of at least £114.05 for a single person and £174.05 for a couple. If your total weekly income falls below the single or couple limits, the Pension Credit will make up the difference. Between 2010 and 2020 the starting age will gradually rise to age 65. You should remember that the Pension Credit could be subject to change by a future Government.

Income from a private pension

• Kingfisher Pension Scheme

The Scheme offers two types of pension:

If you joined the Scheme before 1 April 2004, you are probably building up what’s known as a final salary pension. This is calculated as a proportion of your salary at or close to your retirement, e.g. 1/60th or 1/80th of final salary for each year of service while a member of the Scheme. So if you complete 30 years’ service, your pension will be half (i.e. 30/60th) of your salary when you retire.

If you joined the Scheme after 1 April 2004 or have not yet joined, you will build up what is known as a money purchase pension. Both you and your employer pay contributions at a fixed rate that are invested for you until you retire, when the value of your retirement account will be used to buy your pension. The amount of pension is not fixed and depends on the value of your retirement account and the cost of buying a pension when you retire. If you were a member of the Kingfisher Retirement Trust, this also provided pensions on a money purchase basis.

• Other pensions

You may also have built up a pension in a personal or Stakeholder pension plan or an occupational (company) pension scheme run by a previous employer. If this was a money purchase arrangement you should receive an annual statement telling you about the value of your retirement fund and a forecast of the pension it will provide at retirement. If it was a final salary arrangement, you may not receive a statement annually, but you are entitled to request a statement from the administrator of the scheme once a year.

Building up a retirement income

If you have not already done so, you can begin to build up a pension by becoming a member of the Money Purchase Section of the Kingfisher Pension Scheme. The Scheme offers a tax efficient way to build up a pension - and the Company helps too by matching your core contributions to the Scheme. Simply by making payments while you’re working, you will be building up income to help protect your lifestyle after retirement and for the rest of your life.

Brief details of the pension offered by the Kingfisher Pension Scheme is provided in our article, Kingfisher Pensions at a Glance on pages 14 and 15. Alternatively, you can find out more from the Member’s Guide and the Investment Choices booklet or from the Pensions website www.kingfisherpensions.com, or ask your local HR contact for assistance.

I've decided I need to save more, so when should I start?

Striking a sensible balance between a 'live today, pay tomorrow' and a 'save today, live tomorrow' approach will help you aim for what you want out of life, both now and in the future.

A lot depends on your personal circumstances but long-term savings are usually more effective if they are started sooner rather than later. Why? Because:
• people are living longer, especially women
• the earlier you start the more time you'll have to save

Increasing your Kingfisher Pension

You can increase the benefits you receive at retirement by paying Additional Voluntary Contributions (usually known as AVCs) and, if you are a member of the Money Purchase Section, by paying additional core contributions. As with ordinary contributions, paying additional contributions is a tax-efficient way of providing extra benefits. If you are a standard rate taxpayer, for every £100 you pay, the overall cost to you is just £78, and the saving is even more if you pay higher rate tax. You can now pay up to 100% of your earnings as a pension contribution subject to the Annual Allowance.

If you are already paying additional contributions or are considering your options, it is important to choose the right long-term investment fund for your particular circumstances. This will depend, for example, on your age now, how many years until you want to retire, how much you can afford to pay and your attitude to the amount of risk you are prepared to take.

• Money Purchase Section (KPS-MP) AVCs

If you are a member of the Money Purchase Section, then like your normal core contributions AVCs are credited to a retirement account. However, they will not be matched by the Company.

• Money Purchase Section (KPS-MP) Additional Core Contributions

If you are a member of KPS-MP, then instead of paying AVCs, you can increase your Kingfisher Pension by paying additional core contributions. Normally, additional core contributions will not be matched by Company contributions, but once you have been in continuous membership of a Kingfisher Pension Scheme for 5 years (earlier in some circumstances) matching amounts will be credited to your retirement account of up to 2% of your basic salary, depending on how much extra you are paying.

Both AVCs and additional core contributions are invested in the same way as your core contributions. Information about investment options is provided in the Investment Choices booklet you were (or will be) given before joining the Pension Scheme. Additional copies can be printed from the Pensions website at www.kingfisherpensions.com.

• Final Salary Section (KPS-FS) AVCs

If you are a member of KPS-FS, the Scheme offers a number of investment choices for your AVCs :

• A With-Profits Fund, currently invested with the Prudential Assurance Company, which aims to provide steady growth with a guarantee that if the monies are left in the Fund until retirement, they will only increase in value.
  
• Unit-linked funds, where the value of the funds are directly linked to stock and bond markets. Unit-linked funds are currently invested with two AVC providers, Merrill Lynch Investment Managers and the Legal and General Assurance Company, who offer a range of investment funds.
  

Details of these AVC arrangements can be found in the AVC Guide available from our website: www.kingfisherpensions.com or from your HR contact. Details of the value of your AVC funds are included in your Personal Benefit Statement.

Please note that AVCs may now be taken in cash form, it used to be the case that AVCs started after 7 April 1987 had to be taken in pension form but this has now been abolished. This gives even greater flexibility.

• Other ways to increase your pension

You can increase your pension independently of the Kingfisher Pension Scheme by contributing to another registered pension arrangement such as a personal pension. If you are a member of the Money Purchase Section, you could also use an ‘appropriate’ personal pension plan to contract out of the State Second Pension. However, the Company will not contribute to any other pension arrangement apart from the Kingfisher Scheme, and you should seek independent financial advice before joining such an arrangement.