FINANCE INTRODUCTION 1 MAIN BODY1 Strategies to Fund Retirement 1 Case Study 3 CONCLUSION 8 REFERENCES 9 INTRODUCTION Finance

There are various factors that affect the motivation to save and plan for retirement such as financial awareness and capabilities ofthe individual to save, contributions made on their part as well as time spent in the market in order to make asset allocation decisions. There are various factors that affect the motivation to save and plan for retirement such as financial awareness and capabilities ofthe individual to save, contributions made on their part as well as time spent in the market in order to make asset allocation decisions.

FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Strategies to Fund Retirement.....................................................................................................1
Case Study...................................................................................................................................3
CONCLUSION .............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Finance is the area of study which is used by individuals’ and organisations to carry out
multiple tasks such as managing funds, sources funds and analysing them. Financing refers to the
various sources of income that have been in an individual's life, most of their time goes into
working, creating careers and earning money to support their loved ones (Baker and Ricciardi,
2014). Retirement is that phase of one's life that involves withdrawal from occupational
obligations or responsibilities. This also means that there is no source of additional income for
the individuals except for the savings. The concept of retirement is often seen as a financial goal,
thus, it is important to plan ahead and accumulate different sources of investments so as to
generate more income channels and fund one's retirement. Be it an individual or a family, this
rule applies to all the same.
This document gives a detailed account of provisions related to financial advice aimed at
individuals and families on how to save and invest to fund their retirement. In addition to this,
different types of strategies that could be used for this purpose have been included along with
their benefits and drawbacks. Lastly, three case studies has also been provided so as to give a
brief idea regarding the strategies and arrangements discussed.
MAIN BODY
Retirement Planning is an integral process of ascertaining goals and line of action
necessary to achieve them. It helps in identification of various sources of income, estimation of
expenses, enforcement of a savings plans to manage assets. One can start planning for retirement
at any given stage of their life which makes it all the more important to be understood.
Strategies to Fund Retirement
When one approaches the age of retirement, there are many factors that are required to be
considered such as personal finance streams of present as well as future along with savings made
over the years among other things (Baruch, Sayce and Gregoriou, 2014). Usually it is
recommended that the earlier one starts to plan retirement, the better it is. Correct investment
decisions can help earn more and live comfortably in their post-retirement years. However, one
needs to be cautious of the risks that arise from investing in various kind of income channel
sources.
1

There are various factors that affect the motivation to save and plan for retirement such as
financial awareness and capabilities of the individual to save, contributions made on their part as
well as time spent in the market in order to make asset allocation decisions. A low-level of these
would result in execution of poor decisions, asset allocation as well as excessive reliance on the
cash-flows to accomplish long-term returns.
It is very important for individuals to analyse different ways to fund the retirement in
order to attain higher monetary resources at that time. In order to plan it in an appropriate manner
it is vital to figure out best suitable alternatives and use them (Ways to funds retirement, 2017 ).
There are various types of strategies that could be used by clients to fund their retirement. All of
them are discussed below in detail:
 ISAs Tax Free Savings Plan:
It is the main strategy which could be used by individuals to fund their retirement in an
appropriate manner. A new rule is being implemented by UK government in year 2018 that self
employed persons are required to pay class 2 contribution on income above 6205 which has been
increased from 6025 pounds by the legal authorities of the country. Per week contribution of the
individuals has also been increased by government from 2.85 to 2.95 pounds. It is a great option
for funding the retirement as it can help to attain long term benefits. For employed people the
contribution amount is 8424 pounds per annum (Contribution in social securities, 2018)
Suitability: It is suitable for an individual who is eligible under NI Scheme and are at their
late retirement at the age of 60s to 65. They can select this strategy to funds their retirement
because it can help them to achieve good benefits in long term. Benefits of this option can only
be attained by the persons if they are working with the organisation from a long period.
Benefits: It is a great option for funding investment because it is a high yield saving account
and it has lower risk factors.
Drawbacks: Age affects the benefits of social security because if a person retires at the age
of 50 then its returns will be low as compare to the person who takes retirement at the age of 60.
 Workplace Pension:
It is also a strategy which can be used by individuals to fund their retirement by making
higher contribution in the pension fund. This makes it obligatory for the employers to enrol their
employees in a Pension Scheme. Here, a definite percentage of employee's pay is contributed to
the Pension Scheme on every payday. The amount contributed made to this plan includes both
2

employer as well as the employee. They can save their money in such type of funds in order to
receive monetary resources to fund the retirement (Workplace Pension Scheme, 2019).
Suitability: Auto-enrolment to this Scheme also facilitates voluntary withdrawal on the
employee's part too. Mainly, there are two types of Private Pensions viz. Defined Contribution
and Defined Benefit Pension Schemes. Defined Contribution Plan is suitable for all those clients
who are willing to receive higher amount at their retirement and have just joined a private
company or work at a place which has just adopted the Workplace Pension Scheme. Conversely,
Defined Benefit Pension Scheme is for such individuals who have worked in either Public Sector
or at a higher position in a big private company. Such individuals are entitled to receive a certain
regular amount after their retirement as per the pension rules and regulations. They can withdraw
all the amount with interest which was saved by them as pension funds (Carlson, 2016).
Benefits: There is no investment risk is involved in this option of funding of retirement and
retiree can get life time payments from such option. In addition to this, the savings made under
Workplace-pensions Scheme is tax relieved. Also, any withdrawal of first 25% pension by the
individual is tax-free. The limit imposed on this Pension Scheme on an annual basis comes to
£40,000 which is much higher in comparison to most of the plans provided by government such
as ISA.
Drawbacks: Poor returns are provided by such types of funds and the process of withdrawal
from pension fund is very complicated. Additionally, the amount contributed under this Scheme
cannot be withdrawn by the individual before the age of 55. This restriction gives a certain
rigidity to the Scheme as a whole.
 Investments in Bonds:
It is traditional strategy which is used by individuals to funds their retirement in which
they can invest a fixed percentage of their income in 401 (K) accounts on annual basis. It helps
them to save a large amount till their retirements so that it can be funded in appropriate manner
(401 (k) Plans, 2019).
Suitability: Salaried Employees having a contribution system matching that with their
employers are the most suitable clients for this given strategy (Blake, Wright and Zhang, 2013).
It is suitable such clients who are willing to take retirement at the age of 50 as they want early
retirement with a higher amount to live happy life after it. Clients can transfer their funds after
3

crossing their age of retirement if they have not crossed the limit then they cannot withdraw
amount from such funds.
Benefits: It is a popular employee benefit because workers can use such type of accounts to
put pre-tax compensation towards their retirement which reduced tax burden.
Drawbacks: The money can only be withdrawn by individuals when they reach to the legal
retirement age before fulfilling their requirement it is not possible for them to withdraw money
from the account.
Case Study
On an average, a retiree tends to save £48.7bn per year. Out of the total individuals,
surveyed by BlackRock Group (UK), 48% of the respondents claimed that they did not have
sufficient money to save for retirement. On the other hand, 46% agreed that the governing
external factor to initiate the habit of saving among them was related to pay rise. This means that
if such a group received a pay rise, they would consider saving for retirement as an option.
Additionally, 15% claimed knowing what impact will ensue due to additional contributions was
the main source of internal reason to saving. Whereas, 13% of the respondents sought financial
advice to ascertain how much they needed or how best to save (Delorme, 2015). A Survey held
by Office of National Statistics (ONS) claims that 65% of men have a chance of living till 87
whereas a woman can live up to 90 years of age. Hence, the bigger the retirement period is, the
more substantial retirement funds need to be available with the individual so that they can meet
their daily necessities (Spending Habits of Retirees, 2019).
CASE STUDY: 1
ISAs Tax Free Savings Plan:
It is important to note that once an individual retires, they are entitled to a small sum of
amount provided by the employer under a government-backed scheme (Gardner and Pittman,
2013). The Social Security System allows the citizens, especially those who are self-employed to
have a certain amount contributed as per the National Insurance Scheme. This amount is, then,
reimbursed to the individual and their families once they attain the age of retirement and resign
from their occupational responsibilities.
Mr. Robert Brookes has been a dedicated contributor to the National Insurance (NIC). He
has been in service for 40 years, out of which he has continuously made monetary contributions
4

to the scheme worth £2.95 per week. On 6 April, 2019, Mr. Brookes want to retire. As per the
NIC, the lower earners tend to end up with a lesser payment obligation whereas higher payers
shall be entitled to a higher payment obligation. The annual income of Mr. Robert adds up to
£20,000 for the previous year 2018-19. Out of which, he paid £1,195.24 into National Insurance.
On the other hand, Mrs. Haley Brown has been earning an annual income of £70,000.
Out of which, £4,039.74 will be paid on her part as the Class 2 contributor to the NIC. From the
above, it can be seen that the total difference between the incomes of Robert and Haley is that of
£50,000. This leads to a difference in amount contributed of £2,844.5 (=4039.74-1195.24).
In addition to this, state pension due from another country are also required to be notified
to the concerned pension authorities in regards to the time periods when such a benefit was
availed.
If Mr. Robert Brookes and Mrs. Haley Brown chose the social security plan than they
have to bear the risk which is low interest rate. As the individuals invest their funds for the
purpose of higher returns so that their value of total funds can be increase. For that purpose,
employees will not prefer to invest their money in the social security plan. For the short term this
option is not suitable because investor does not get higher returns if they employees withdraw
the funds. But for the long term this investment option is beneficial because employees will
contribute in the fund from the starting point when they start job and contribute until they get
retire. So the individuals get higher more returns when the amount of investment is more.
Mr. Craig has paid their share of Social Security Contributions in their home country,
France for many years. He moved to UK for work purposes and paid his contributions until
retirement. He paid 30% of the total contributions under the French Social Security Scheme
whereas the remaining 70% was paid under the NIC Scheme prevalent in UK. At the time of
receipt of State Pension, the authorities passed on their claims to the French Pension Authorities
who duly notified of the claims made on Mr. Craig's part. After this, the UK Pension Authority
worked out his pension amount as per the NIC alone. Based on this, it was ascertained that he
would be entitled to a £75 per week based on her UK NIC alone.
After this, some comparison calculations have been carried out if he had paid the entire
contribution amount, including French as well as UK, under UK Scheme Alone. This amount
came up to a state pension of £120 per week. Since this amount is higher than £75 per week
computed under the NIC scheme alone, Mr. Craig shall be entitled to receive this amount. As per
5

the contributions made on the 70%-30%, 70% to UK and 30% to French. This means that under
French Scheme, he will be entitled to receive an amount of £36 (=120*0.30) per week and £84
(=120*0.70) per week as per the UK NIC Scheme.
Through this strategy, individuals such as Mr. Craig can be benefited with both schemes
based in both countries (Jex and Grosch, 2012). This will be an added advantage to an individual
eligible under international State Pension Schemes leading to the receipt of diverse amounts that
can help in fulfilling their additional living expenses and other necessities.
CASE STUDY: 2
Workplace Pension:
The Workplace Pension Scheme states that the worker has agreed to contribute a certain
amount in the form of contribution of their total earnings. On the other hand, the employer also
contributes a certain percent to this which goes as pension on a monthly basis.
Mr. and Mrs. Williams are a couple working in a Private Company. Their age is 38 and
37 years of age respectively with two young kids. The couple has been working in the company
for 14 and 12 years earning £20,000 and £22,000. They have been thinking to enhance their
investments in order to fund their retirements much more sufficiently in future. Based on the
policies of their companies, the couple has been auto-enrolled in Workplace Pension Scheme
recently. Currently, they both pool in 5% of their 'qualifying earnings' whereas the minimum
amount paid by their employers is 3% each. Essentially, there are two types of Private Pensions
viz. Defined Contribution and Defined Benefit Pension Schemes.
Under Defined Contribution Pension Scheme, funds contributed by employer or the
employee are put into investments such as shares by the pension provider itself. Depending upon
the performance of shares in the market, the value of the contributor's pension pot can increase or
decrease. Therefore, private companies tend to invest in low-risk investments, especially when
their staff comes close to age of retirement. The value of Pension Fund depends on the amount
pooled in by the pension provider and employee, performance of portfolio as well as the
arrangement chosen by the pension seeker such as regular, lump sum or small payments.
Generally, 25% of the Pension Pot is Tax Free.
6

On the other hand, Defined Benefit Pension Scheme, is one wherein the amount
received by the pension seeker at the time of their retirement is equivalent to the number of years
one has been a member of the scheme as well as the salary.
In the context of given case scenario, Mr. and Mrs. Williams can increase their retirement
funds by increasing their level of contributions made to the Workplace-pensions Fund, anywhere
between 6% to 7%. This would help them in creating additional funds, the benefits of which can
be availed by them in the future, specifically post-retirement. Since the amount shall be invested
in shares both high and low, the couple will be able to make much better returns on this
investment from initial years of their occupation itself. Also, the Defined Contribution Plan is
ideal at their age, being younger employees, the couple can easily sustain themselves by
incrementing their level of contribution to the pension pot just a little bit higher. In addition to
this, the couple earns more than £10,000 which makes them eligible for auto-enrolment (Leung
and Earl, 2012).
CASE STUDY: 3
401 (K) plans:
All the employers in UK are allowed to enrol all their employees to 401 (K) plans. All
the business entities are offering such plans for it which must choose a default investment fund
and saving. All the private and personal schemes of pension are served for the purpose of saving
in 401 (K) plan. It helps to reduce income tax and can't be touched until the age of 55. The age
limit is being increased by government from 50 in recent modifications in the laws.
Mr. John is an employee of a multinational company which operates business in US as
well as UK. He was promoted by the higher authority and being transferred from US to UK. He
wanted to settle up there so he applied for green card and received the same. A contribution in
401 (K) plans was made by him since he joined the company. Now he is not a US citizen and
holding a UK passport. He is going to turn 55 on 13 May 2019 and is willing to withdraw the
amount from the 401 (K) plan. Now he has to transfer all his funds from US to UK and 10%
penalty can also be applied on him. The US Funds totalled to an amount of $20,000 on which a
penalty charge worth $200 shall be applicable as per the provisions of 401 (k) Plan. On the other
hand, his UK Funds regarding the same amount to £10,000 (Pfau, 2013).
When he was in US and all the contributions made by him in that period to the retirement
scheme will be treated under the US law. However, once he shifts to UK, all contributions made
7

in UK will be treated as this country's laws. When the funds are taxed in US then it could be
transferred to UK and in order to ignore dual taxation he is required to keep detailed documents
regarding the tax.
If Mr. chose 401 (K) plan than they have to bear the risk because in this scheme employer
contribute on the behalf of employee but there is a condition that all funds can be withdraw at the
time of retirement. If a person withdraws the funds before the retirement than it has to pay 10%
as a penalty and it is a risk which is associated with this plan (Wainwright and Kibler, 2013).
Social security is essential for the individuals so that they can easily spent their life. After
the retirement the sources of income has reduced so to manage its bread and butter social
security strategy is helpful. This strategy is helpful for those persons who worry about its late
retirement at the age of 60 to 65 (Wang, 2013). As 401 (K) plans is important for those persons
who want to take retirement at the age of 55. For that purpose, individuals contribute in this plan
so that after retirement they can live happily and does not depend upon other persons for the
money and the main advantage is that employees can use this type of account to put pre-tax
compensation in context to retirement. As pension is used by the individuals for their retirement
purpose and in this planning workers have to contribute a certain percentage of amount to the
pension scheme so that after the retirement this fund can be used so that they can spent their life
happily (Yoong, See and Baronovich, 2012). So these are the different strategies which are used
by the individuals as per their suitability. After the retirement there are various financial
problems which are arise in front of persons but effective retirement planning brings the peace of
mind. As a result, individuals does not worry about their remaining life.
CONCLUSION
As from the above report, it has been concluded that retirement planning is important for
the individuals. The future is uncertain and no one can predict what will happen and the finance
is the most essential need of persons without it a person cannot survive. The strategies which are
related to the retirement planning is require to be effective so that more benefits can be taken. As
a result, after the retirement employees does not worry about the finance and does not depend on
other for the money and other essential things. There are various retirement plans which can be
chosen by the employees as per their requirement. The benefit which is associated with it is that
retirement plans offers the tax benefits. There are various rules and strategies which are related to
it and these rules and strategies have been evidenced in the above mentioned case studies.
8

REFERENCES
Books and Journals
Baker, H. K. and Ricciardi, V., 2014. Investor behavior: The psychology of financial planning
and investing. John Wiley & Sons.
Baruch, Y., Sayce, S. and Gregoriou, A., 2014. Retirement in a global labour market: a call for
abolishing the fixed retirement age. Personnel Review. 43(3). pp.464-482.
Blake, D., Wright, D. and Zhang, Y., 2013. Target-driven investing: Optimal investment
strategies in defined contribution pension plans under loss aversion. Journal of
Economic Dynamics and Control.37(1). pp.195-209.
Carlson, R. C., 2016. The new rules of retirement: strategies for a secure future. John Wiley &
Sons.
Delorme, L., 2015. A Blueprint for Retirement Spending. Journal of Financial Planning.28(9).
p.40.
Gardner, G. and Pittman, S., 2013. Measuring the Risk of Running out of Money in Retirement.
Journal of Financial Planning.26(2). pp.38-44.
Jex, S. M. and Grosch, J., 2012. Retirement decision making. In The Oxford handbook of
retirement.
Leung, C. S. and Earl, J. K., 2012. Retirement Resources Inventory: Construction, factor
structure and psychometric properties. Journal of Vocational Behavior.81(2). pp.171-
182.
Pfau, W. D., 2013. A Broader Framework for Determining an Efficient Frontier for Retirement
Income. Journal of Financial Planning.26(2).
Wainwright, T. and Kibler, E., 2013. Beyond financialization: older entrepreneurship and
retirement planning. Journal of Economic Geography.14(4). pp.849-864.
Wang, M., 2013. Retirement research: Concluding observations and strategies to move forward.
In The Oxford handbook of retirement.
Yoong, F. J., See, B. L. and Baronovich, D. L., 2012. Financial literacy key to retirement
planning in Malaysia. J. Mgmt. & Sustainability.2. p.75.
Online
Ways to funds retirement. 2017. [Online]. Available through:
<https://www.forbes.com/sites/investor/2017/06/12/9-essential-ways-to-fund-
retirement/#7ac0b1ea1fb5>
Contribution in social securities. 2018. [Online]. Available through:
<https://www.which.co.uk/news/2018/04/self-employed-12-tax-changes-you-need-to-
know-for-2018-19/>
Workplace Pension Scheme. 2019. [Online]. Available Through:
<https://www.gov.uk/workplace-pensions>
401 (k) Plans. 2019. [Online]. Available Through:
<https://www.theamerican.co.uk/pr/ea-tax-efficient-401k-planning-Maseco.php>
Spending Habits of Retirees. 2019. [Online]. Available Through:
<https://www.prudential.co.uk/insights/spending-habits-in-uk-retirement>
9