Those of us lucky enough to earn over £50,000 have just seen a reduction in the amount we can pay into our pensions.

That was part of a range of new measures, each measure will affect someone; If you have been paying more than £50,000 into your pension, or if you were planning to make an extremely large pension contribution in the year you retire, or if you earn over £150,000 and you’re in a final salary scheme – especially if a significant pay rise is on the cards.

At the other end of the scale, if you’re almost 60 and your entire pension pot is worth just under£18,000 you may be affected, too.

The rules changed immediately they were announced on 14th October, so if you recognise any of those, you’ll need to do some rapid reading-up, or get some advice.

If you’re 30 now, you might file that under “whatever”.

If you’re between 50 and 54 now, you might want to think about whether the change will affect you.  Obviously, the younger you are, the longer you will have to wait to draw your pension.

The pension companies are already busy with this work, tons of people need information – at least – and some are choosing to, er, board the flight if you’ll forgive the metaphor.

If you are affected, don’t leave it until the last minute to think about it.

Drs H invested for income two years ago, when he retired.  Our second annual review will be on Friday.  I’ve begun preparing for that, with a performance review of all the funds and holdings within the funds.  Their brief was a sustainable income, with a long retirement in mind, so plenty of scope for the income to rise to keep pace with inflation. (Although, they haven’t started spending the income yet.  Maybe this time?)

Mr & Mrs S are new clients.  They’ve recieved a lump sum from an injury settlement, so it’s not a cheerful time.  They need a modest income, from a portfolio that can cope with changes in their objectives.  We’re at the begining of the planning process.

A different Mr & Mrs S need more income, so we need to change their investment brief.  They want a high level of income now, but with limited scope for protection from inflation.

Finally, Mr & Mrs M retired five years ago, but have been managing without an income from their investments.  Their children would rather that Mum & Dad enjoy the money, instead of struggling without it.  So, we’ve agreed to chase a useful level of income now, with some scope for protection from inflation.

Four customers, similar ages, similar wealth levels, and broadly similar objectives.  But there are some crucial differences, aren’t there?  They’re the bits I enjoy coming to work for!

Names have been changed to protect the innocent.

Mr A decided to draw his pension.  He’d saved up over the years and ended up with two separate pension policies. One was worth £40,000, the other £20,000 (let’s say).

From that £60,000, he wanted his lump sum of £15,000, leaving £45,000 to buy an income for the rest of his life.

By the time he asked for my help, the pension providers had offered him £206 per month for life.

Luckily for Mr A, he didn’t take that offer.

He gave the £45,000 to a different company instead.  It made sense to choose the company that will pay the highest income, instead of just using the same company he’s saved with.

We got him £241 per month instead.

It pays to shop around.

These figures were compiled in December 2008 and will drift over time.  But you get the point?

If you’ve got a pension, it’s probably worth less than it was a year ago.  So why bother paying any more in? Or, if you’re young enough, why bother starting one?

Forget, for a minute, that “pensions” usually seem to be over-priced contracts, of more benefit to the pension provider than to you.

For example, consider the sentence “do I need a pension to live on?”

Erm, I don’t know. Do you?

Will you really retire at 50?

Will you need any more than the six grand or so the state will (hopefully still) provide?

Remember thata couple of generations ago, people retired at 65 and weren’t expected to make it to 70, so they didn’t really need to worry.

Now, try replacing the words “a pension” with “some money“?

If you’ve done that, and the consequences of NOT having “some money” to live on are worse than doing without a bit of your spendable stuff today, then you’ve got over the hard bit – you need to do some saving.

You could assume that your parents will give you some money, but that might not be such a dead cert. for a few reasons.  Quite a few oldies are spending your inheritance for you.  Quite a few are finding that their wealth won’t last longer than they do.

So, back to this saving.  Old-fashioned, put away part of every month’s income, proper saving.

Should you do your saving through “a pension” or “a bank account” or “investments” or “your own home” or “a property” or “a business” or  “having lots of children“?

A pension might suit you if you if you like the idea of your saving getting an instant boost from the taxman (taxperson?).  I’m generalising so much that an actuary would faint here, but – the tax boost is the usually same as the level of tax you pay on your income.  Eg, if you pay 20% tax, then your £100 gets increased to £125 immediately.

It won’t suit you if you want freedom to spend the money any way you like, whenever you want.

A bank account might suit better if you prefer simplicity (any old bank account would do the trick) or if you might need the money before you retire.

It might not suit you so much if you regard that bank account as accessible savings.  This is a problem I encounter a lot:
‘I don’t like pensions.’
‘Fine, so what are you doing instead?’
‘Well, I had some savings but I spent them on [insert your vice here]‘.

I’m not saying I don’t trust you not to spend it…just…I’ve been lied to before y’know?

Investments? same issues as bank accounts really.  The choice between cash and investments?  I must save that for another day.

Your own home will keep you during retirement provided you can work out a way to extract money from it.  Eg, flog the house and move in with the kids, borrow against the house and let the kids pay it back from the house proceeds (provided that somebody will lend against the house at the appropriate time).

Property, other than your own home?  What can I say?  Not a popular choice at the moment.  But.  I don’t know anybody who’s lost money on property over the long term.
Long Term!
If you’ve got a 10 year plus game plan, and a nice lump sum deposit, and you choose the property carefully, it’ll probably work.

I’m assuming you haven’t the cash to buy outright, because then you’re investing not saving.  Again, that’s a whole different subject.

It might suit you if you’ve got a lump sum to throw at it, and you’re happy to be involved.  It’s your asset, nobody will look after it like you.

It won’t suit you if the thought of having the extra mortgage is terrifying and it simply won’t work if you can’t put your hands on the deposit.  Remember that the mortgage needs to be paid even if you have no tenant, and the cost of buying a property can be quite high.

A business can work VERY well.  It can keep you, and maybe the next generation, off the streets.  All you need to do is become/remain very successful.

Having lots of children will also work, but it takes years of effort.  You need to instill a sense of guilt so that they know they are expected to keep you during retirement.  Then you should probably make sure they end up rich, or the plan could backfire horribly.

There isn’t a best and worst solution, just the one that suits you best.

Some Warnings:

• If you’ve no UK earnings, all the pension stuff won’t apply to you
• Only a crazy person would do something they don’t understand.  Get more information til you DO understand, or take some advice.  Preferably from an adviser who doesn’t shift awkwardly in their chair when you ask about paying a fee.
• Anything that involves taking on a debt needs careful thought..