Pension Planning For Dentists
Danny James looks at pension-fund options for dentists approaching the final leg of their retirement strategy.
Throughout your working life, you have, no doubt, sought to develop an effective financial plan for retirement. This will usually involve beginning early, contributing regularly and always keeping your goal in mind. As you approach retirement, so too approaches the time to make use of your pension fund. And it is fair to say that the actions you take in the five years before retirement could dictate the quality of life you have during your retirement years.
BDA Plus provides a specialist pension-planning service for the dental profession. As a provider of independent financial advice, the service supplied will differ from that of your pension company because our advice will be independent of any specific provider. The result is unbiased guidance, designed to help you use the assets you have accrued throughout your entire working life in the way most beneficial to you.
Assessing your situation
The first stage of the service involves assessing your current and potential financial situation. This will usually involve a comprehensive financial review of all your assets, including a thorough examination of the specific details of your pension fund.
At some time, you will have expressed your attitude to risk, which dictates how your funds were invested. Bearing in mind the number-one rule of investments (the greater the potential return, the higher the risk of a loss), we will help you ensure that your pension fund is invested with minimal risk because you will not have time between now and retirement to recover from potential market losses.
You will then need to assess the amount of income you will need to support the lifestyle you desire in retirement. This can be more difficult to do than many expect. However, years of experience in this field means we can guide you through the process and help you avoid the common mistakes made. It is essential this aspect be considered in detail because either under- or over-estimating the income you need can have undesirable consequences for years to come.
Considering the options
With your situation fully analysed and a realistic goal in place, next comes the more complicated stage of considering the options available to you. Upon approaching retirement, it is common to receive details on buying an annuity from your pension provider. However, your pension fund will include an Open Market Option, which means you do not have to buy an annuity from your existing provider but instead you can use the fund you have built up to buy a pension with a different insurance company of your choice.
Conventional Lifetime Annuity: One of the simplest ways of providing an income throughout retirement, an annuity provides a secure, taxable income for the rest of your life. Once established, an annuity cannot be changed under normal circumstances and this security restricts flexibility to make changes further down the line.
Once the funds have been invested, and when the policyholder dies, the fund is lost. Whilst the annuity can have a guaranteed payment period of up to 10 years and can, ,make provision for a spouses pension, there will be no residual fund value.
Impaired Life Annuity: In 1995 the tracking practice on pension annuities was abandoned and saw the introduction of enhance rates for people with slightly reduced life expectancy due to specific medical and lifestyle conditions. This commenced with the Smoker annuity, which offers an enhanced annuity to regular cigarette smokers (at least 10 cigarettes a day for at least ten years), and has for some years been the only product of its type on the market. The concept was further extended in 1996 to include other fairly common lifestyles and medical conditions and in 1999 a special annuity for those with diabetes was launched. Research indicates that approximately 40% of those at retirement could qualify for these enhanced annuity rates.
Unsecured Pension (Income Drawdown): This more flexible option involves withdrawing a taxable income directly from your fund, leaving the remainder invested. The option is more suitable for those with substantial funds or with other sources of income. This option carries a higher risk due to the investment element. The option is available until age 77, upon when you must currently purchase an annuity with the remainder of your fund.
In the event of death the remaining value of the fund is left to the deceaseds estate. A spouse can continue the draw down plan, purchase an annuity or receive the fund as a cash sum subject to a 35% tax charge.
Short Term Annuity: It is an arrangement made between you and an insurance company of your choice under which you pay over part of your fund and in return the insurance company pays you an income for a fixed period of no more than 5 years.
There are a range of products in the market place offering variations of the same theme. Generally the retiree buys an annuity for a short period of time, say five years, they are guaranteed a set level of income for five years, which is similar to a traditional annuities income. This product has the same death benefits as the income drawdown plan.
Other options to consider include the size of the lump sum you would like to withdraw from your pension fund at retirement age (normally up to a maximum of 25%, which is received tax free), securing your income against inflation, and whether you will need to include a Survivors Pension to provide an income for your spouse or partner once you have died.
The service BDA Plus provides involves outlining each of these options and advising you on the best course of action depending on your individual circumstances.
Regular review
Even throughout retirement, the financial-planning practice of plan, review and plan again still very much applies. BDA Plus will be on hand to provide a continuing advisory service designed to cope with any changes in circumstance, aspirations or market conditions to ensure you are always in control of your finances.
The particular service you receive from BDA Plus will be utterly dependent on your individual circumstances. For more information on independent pension planning for dentists from BDA Plus, call 0845 130 1366 to speak to our retirement planning specialists.
Let us help you make the most of what you have worked so hard for so you can enjoy the retirement lifestyle you deserve.
As a provider of independent financial advice, the service BDA Plus supplies will differ from that of your pension company because our advice will be independent of any specific provider
Notes
Lloyd & Whyte (Financial Services) Ltd is authorised and regulated by the Financial Services Authority.
BDA Plus is a trading name of Lloyd & Whyte (Financial Services) Ltd used under license from the British Dental Association.
An alternative telephone number is available: 01823 250750
Calls may be recorded for use in quality management, training and customer support.
The value of your investment and the income from it can fall as well as rise and is not guaranteed. You may not get back the full amount invested.
The past is not necessarily a guide to future performance.
by: Daniel James
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