As you will appreciate, retirement planning is more than pension planning. However, when most people think of retirement they think primarily of purchasing a pension plan. While pensions and annuities can play a significant role in retirement planning, there are other options to fund retirement, some with much better tax advantages.

The options for retirement funding include:

• Company-sponsored pension
• Individual pension
• National Insurance
• Using own investments (e.g. mutual funds)
• Working in retirement
• Operating in a business.

While I cannot provide a full assessment of these options in the article, I introduce a few of them below.

A company-sponsored pension offers significant benefit in terms of retirement funding because:

• It offers tax deductions to both the individual and the company
• The company normally matches the mandatory portion of the employee’s contribution and in some instances, matches a portion of the voluntary contribution
• 25% of the fund can be commuted at retirement, without incurring a tax liability.

It is important to note that with the increased prevalence of Defined Contribution plans, you have a greater responsibility for the management of your own pension. Therefore, you need to be more engaged on matters surrounding your company-sponsored pension, following the principles identified below:

• Since the investment risk is now with you, you should seek to have a say in the investment choices for your funds (within a limited range)
• You will require more education to have a better understanding of the decisions youwill have to make in your retirement and pension planning
• The Trustees of the plan must provide more information and a greater level of transparency in managing the plan on your behalf
• Prudence is critical in decisions pertaining to the choice of provider, as these are pension funds.  You need to know who is managing your pension fund investments.

You should note that, at retirement, the income derived from a company-sponsored pension becomes part of your income and is assessable for income tax.

In this respect, mutual funds may offer significant benefits as a retirement planning tool because they allow you to reduce your current assessable income and no tax is levied on the capital gains. Therefore a properly designed portfolio of private investments can be excellent tool for retirement planning, reducing tax liability now and in retirement.

An individual pension/annuity can provide another source of retirement income. Like your company-sponsored pension, this income is subject to tax and some assessment of total taxable income in retirement should be made before significant sums are devoted to creating a registered individual pension plan. Funding your mutual fund investments should perhaps take precedence over funding this type of programme (for the reasons discussed above).

If you want to discuss your Retirement Plans in more detail, please contact Michael at Lashley Financial at 423-6203.