Pensions - What Should I Do ?

Candy J asked:


I received an email today that stated that most of the changes that have caused the downfall of the social security system were done by democra tic presidents.

Sean

Moneyman asked:


The Government has in place a State Second Pension (S2P), which is in addition to the Basic State Pension. It is available to employees and is earnings related, with funding coming from your National Insurance Contributions (NICs). It was previously known as the State Earnings Related Pension Scheme (SERPS).

The Government give people the option to contract out of the State Second Pension (S2P) into a personal pension or stakeholder pension. National Insurance Contributions are paid in the normal way but are then ‘diverted’ into this private pension pot. Added to these contributions is any income tax relief due and other incentives that may be offered by the government. However, such incentives to contract-out are not currently available. These contributions and the pension pot this provides then replaces the individuals S2P.

The fund grows as any other money purchase pension scheme would do. It is based on the level of contributions, the number of years the fund has to grow to retirement and the performance of the assets the funds are invested in. As with all such investments, returns are not guaranteed and so funds can go down as well as up.

However, as a general rule, the earlier you start saving for retirement and the more money you invest, the bigger the final pension fund will be.

At retirement the pension is used to purchase an annuity which will provide an income, which will depend on the annuity rates prevailing at the time of retirement. There are specific rules surrounding this annuity for example, if you have a spouse or civil partner at retirement, the annuity must pay 50% of the income to them if you die first.

One good thing is that the annuity does not need to be purchased from the same company where the pension fund is held. This means that you can shop around for the best annuity rates on offer. The smallest difference in returns available can make a sizeable difference to the amount of income received.

Twenty-five percent of the fund can be taken as a tax-free cash lump-sum when you retire. This will reduce the amount available to purchase an annuity so it is worth knowing what you’re going to do with the moeny before you take it. It may well be that using 100% of the fund to purchase an annuity actually proves to be more tax efficient or will generate a better return than other investments on offer.

Whether it is appropriate to contract out from the S2P depends on individual circumstances, though age at the time of contracting out is a key factor. Although it is possible to contract back in to the second state pension at a later date and as retirement nears. It is usually beneficial to contract back in at this time as the contributions into a personal plan will have less time to grow and so returns could well be lower than benefit derived from a government pension.

The Pensions Service and Financial Services Authority (FSA) have guides for those wondering whether to contract in or out or wanting further information on the subject. Visit their website for details.



Xavier

christopher william asked:


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If you’re short of cash and consider working a little longer or maybe getting a part-time job to reduce your dependence on deflated investments,think again.You can change those plans.On the other hand, you may choose to retire now, play a little less golf and sleep better.It’s all your choice.A sweet,comfortable and enjoyable retirement is in your hands.You could get started right now or wait 5 years more,it’s your choice.A good way to get started is getting a good manual and handy book,with a “do it yourself” step by step method,which ultimately will bring a flow of cash for you.One that has proved to be such a tremendous help is “12 month millionaire”Do I see doom and gloom ahead? Absolutely. But I also see tremendous opportunities made possible.The fact that money may be just a few clicks away is indeed tempting.Once you start your own business(as you will learn form 12 month millionaire), the advice pours in from all.Unsolicited advice doesn’t just come from family members. Friends, lawyers, accountants, even strangers you meet at networking events or soccer games suddenly become experts when they learn that you own your own business and see your cashflow. It’s a jungle out there.But always  remember, people close to you have their own motivations and their own fears coloring their advice.Follow your path and achieve your dreams,build now for an early,sweet,comfortable and enjoyable retirement.

www.zcashflow101.blogspot.com



Claire

Seeker1898 asked:


Hi all! I’m planning on becoming a police officer and I’m already in the process of really researching the career out from top to bottom. Are police officer pensions and benefits great after 25 years of service? In general, in today’s dollars and excluding future inflation, could I expect to get at least $2,500 per month after retirement in net pay plus great health and other benefits? Any answers would be greatly appreciated. Thanks!

Caroline

hannah_spanner_x asked:


Whats the idea behind them, how does the process work?
Why is it considered one of the best policies in europe? Are there any problems that the new pension system has created?

Kayla

Theodore D. Lanzaro, CPA asked:


Whenever advertising or articles regarding pension plans are mentioned, they are usually ignored by small business owners and the self-employed. Small businesses are often under the impression that pension plans are only for large corporations and do not apply to them. However, by ignoring these messages they are missing the opportunity to take advantage of the benefits that pension plans have to offer.

Businesses that offer this type of fringe benefit increase job satisfaction among their employees which can often result in a decrease in staff turnover. Another benefit pension plans can provide significant tax deductions for business owners and deferred earnings for employees.

Nowadays there are an abundance of plans and options to choose from. Many plans are very convenient to implement and require very little paperwork. So, there is no time like the present to implement a retirement plan for you and your employees.

In order to choose the plan that fits your company’s needs, you must begin with a sound understanding of what your options are. There are pros and cons to every plan so each should be carefully considered. To assist you in making the right decision for your company, below is an overview of the current and most common plans:

The 401(k) Plan

A 401(k) plan is a retirement plan sponsored by employers. With this type of plan, employees may choose to have a portion of their salary deferred to any of the 401(k) investment choices that have been selected by the employer. The employer may also contribute to the employee’s 401(k) by matching a portion of the investment. The benefit of a 401(k) is that employees are not taxed on the contributions they or their employers make until they withdraw from the plan. Another benefit is that accumulated earnings on the account are tax-deferred as well.

A 401 (k) can be more complicated to establish and maintain then other types of plans and there are annual IRS reporting requirements associated with it as well. Also, the law requires that if low compensated employees do not contribute enough by the end of the plan year, then the limit is changed for highly compensated employees.

There are individual 401 (k) plans that can be set up by a company (incorporated or unincorporated), in which the owner is the sole proprietor and/or only employee. The key advantage to plans such as these is that they permit larger contributions than other plans. The individual 401(k) also tends to be a little less complicated than the traditional 401(k).

Simplified Employee Pension (SEP) Plan

Often referred to as a SEP-IRA, this is essentially a retirement plan set up by a small business employer or by a self-employed person. This pension plan allows employers to contribute to SEP-IRA plans on behalf of their employees in an amount greater than traditional IRA limitations. The main advantages of the SEP-IRA to the employer is that the administrative burdens are few, the plan is simple to install, and it does not have the start-up and operating costs of conventional retirement plans.

Because you decide the amount to be contributed each year to SEPs, this plan can offer a great deal of flexibility. However, they can only be funded through employer contributions and annual contributions are limited to 25 percent of each employee’s pay. Another benefit of SEPs in contrast to other plans is that you can establish it up to the extended due date of your tax return.

Savings Incentive Match Plan for Employees (SIMPLE)

The SIMPLE plan gives small businesses an affordable way to offer retirement benefits through employee salary reductions and matching contributions similar to the SEP. A SIMPLE plan is available to yourself and eligible employees and is made up of individual retirement accounts (IRAs). A SIMPLE plan can also be set up as a 401(k) plan. Both of these types of SIMPLE plans can be established easily using a “model” plan document which is available from the IRS. With a SIMPLE plan, employers offer matching contributions equal to employee contributions or fixed contributions equal to a percent of employee wages.

Requirements and limitations for the SIMPLE plan dictate that employers must have fewer than 100 employees and must generally be established before October 1st of the calendar year. Employers that currently sponsor another retirement plan generally cannot sponsor a SIMPLE plan.

The Keogh (H.R. 10) Plan

A Keogh (or HR 10) plan is a tax-deferred retirement savings plan for self-employed individuals and their employees. Most self employed individuals who have earned income from self-employment are eligible under this plan.

Keogh plans have gained popularity in recent years thanks to tax legislation that has made it possible for contributions made to Keogh plans equal to that of plans held by large corporation. Outlined below are the two key types of Keoghs:

1. Defined contribution plans: These plans come in a few different forms such as target benefit plans, money purchase plans, and profit sharing plans. Each plan requires contributions that are based on either a percentage of an employee’s wages or percent of an owner’s profits. The amount the contributions have accumulated by retirement will dictate what benefits the participants will receive when they retire.

2. Defined benefit plans: Plans such as these have a set amount of retirement benefit that the plan will pay out upon retirement and contributions made are based upon the payout amount. Any benefit that a participant will receives upon retiring is limited by law and requires actuarial calculations to determine the amount of annual contribution needed.

One major drawback to all Keogh plans is that the reporting requirements are more complicated than the SEP and SIMPLE-IRA plans. Another disadvantage is that a business owner is required to make contributions for eligible employees and therefore cannot only cover themselves.

Contributions can be made to Keogh plans up to the company’s tax return due date (extensions included). However, they must be established no later than December 31st of the tax year that you will begin taking a deduction for contributions.



Ian