PENSION PLANNING

Pension Planning

Pension Planning

A pension is a specific type of retirement account that your employer offers, so retirement and pension planning go hand and hand. Although there are various types of pension plans, in most pension accounts, your employer sets aside money for you based on the number of hours you work and your wage rate. Private pension plans are generally sponsored by employers and typically are qualified under Section 401(a) of the Internal Revenue Code (Savageau, 2007, p. 56). This means that the plan must meet certain specified requirements by the Internal Revenue Service (Ruffenach, 2007, p. 256).

Background

The year 1980 defines a turning point in pension planning. Prior to 1980, according to the Employee Benefit Research Institute, company pension plans were a common way of funding retirement, leaving most employees with little cause for concern over post-retirement finances (Marlowe, 1985, p. 99). After 1980, however, a changing economic environment and the emergence of new types of retirement plans signaled a need for active involvement and greater concern over the state of retirement finances. With the responsibility for a financially secure retirement now mainly yours, the information an overview of retirement plans provides can be essential to making good financial decisions (Mezzullo, 1998, pp. 14-15).

High Income Executives/Directors Pension Planning

Business owners, high-income executives and incorporated professionals are increasingly using Self Invested Personal Pension (SIPP) to maximize retirement savings, particularly if concerned whether they have enough in RRSPs to fund their desired retirement lifestyle. According to Westcoast Actuaries Inc., more than £200 billion will be invested in SIPP by 2020 (Miller, 2011, p. 88). Similarly, Small self-administered Scheme (SSAS) is a type of retirement plan for businesses and entrepreneurs. Although SSAS is credible and has been in the market for some time, it remains largely unknown to many small and medium sized businesses. As a result, the true potential of SSAS pension plans has been overshadowed by the better known 'Self-Invested Personal Pension' (SIPP). Many companies in the UK, mainly in the SME and entrepreneurs do not realize the benefits of SSAS have to offer.

Self Invested Personal Pension

The SIPP (Self Invested Personal Pension) has caused quite a stir since it has become available. The benefits of SIPPS are manifold. For a start, would-be investors have a range of choices when it comes to investments. While regular investing is accompanied by taxation, those investing in SIPPS are offered sizeable tax relief. Essentially, you will have complete control over your pension. Thanks to the internet, you will be able to see valuations in real time and deal with your pension affairs quickly and efficiently online. There are also the traditional telephone and mail options for communication.

For savvy investors, SIPPs are not so much a hidden secret but an open pot of gold. Initially, SIPPs were utilised by the wealthy only. However, once the advantages became more apparent, those looking to boost their pension through prudent investments came forth with the number of SIPP investors quickly multiplying to more than ...