Retirement planning has always been complicated and, despite efforts to simplify matters in 2006, it unfortunately remains so. Financial constraints have caused successive governments to seek ways of reducing the subsidy to higher earners available through tax relief on pension contributions. However, for the vast majority of taxpayers, even most of those paying tax at 40%, pensions continue to offer significant benefits including:
- Tax relief on contributions at 20% or 40% depending on personal circumstances;
- Tax-free growth within the fund (except for the 10% withholding tax on dividends from UK companies);
- Up to 25% of the fund as tax-free cash at any time from 55 to 77 (the upper age is currently under review); and
- Balance of fund can be used to provide a taxable income in various forms.
The rules for those earning in excess of £130,000 a year are currently more complicated; please ask for details.
Many business owners prefer to take control of their Retirement Savings using Self Invested Personal Pensions (SIPPS) or Small Self Administered Schemes (SSAS). This allows a wider range of investment choices, including the purchase of Commercial Property from where the business can operate and rental income being directed into the Pension, thus taking advantage of all the tax benefits.
Land and unlisted shares are also permitted investments and although the rules are complex, we can assist.
Please note that active management and investment expertise are needed for a SIPP, and charges may be higher than a personal pension or stakeholder plan. If investment is within commercial property, this may be illiquid at certain times
The options available at retirement are now far more flexible than a few years ago. Effectively, once you are over the age of 55, you could start to take pension benefits. It is no longer necessary to purchase an annuity - whereby your choice at the outset is fixed, but consider more flexible options more suitable to your own specific circumstances.
Just about everyone can draw 25% of the fund value as a Pension Commencement Lump Sum (currently tax free) before deciding on how to take any income. There is the opportunity of using the ‘Open Market Option’ rather than the choice of taking benefit from whoever you saved with.
The Coalition Government is currently reviewing Pension legislation and various changes will come into force over the next few years. As these are constantly changing, advice is needed from people who are expert in this area – and we can help with the complexities and recommend the most suitable solution for you as an individual.
Ms H., Kingston upon Hull
"By talking to me, I told her that my husband was to be offered an early retirement package and would be able to have his pension paid from the moment he retired. After further talks, she recommended that I wait until this happens as I would receive more of this pension.
I followed her advice, including having a professional report undertaken to ensure that I get the correct amount. This advice meant that I actually received pension money of approximately £50,000 more than I would have if she had not become involved! "
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