 |
 |
 |
 |
 |
 |
 |
|
Planning for retirement:
Planning for retirement may not be the most exciting thing in the world – but it is certainly one of the most important. After all, you may work for 40 years, but can easily expect to be retired for 25 or 30 years, or even longer. So ensuring that you have enough money to fund a comfortable retirement is essential. Contributions Almost everyone in the UK can contribute £3,600 (actually £2,880 net of basic rate tax relief at 20%) into a pension scheme – even if they have no taxable income. In addition, you can top this up to your entire earnings from “trade, profession, or employment” for the year, subject to an annual allowance set at £235,000 for 2008/9 and rising thereafter. You will receive full tax relief on this, at your highest marginal rate (although the relief cannot exceed the tax you actually owe). Contributions above this limit are allowed, but there is no tax relief. Your employer, if you have one, can top up any contributions you make to the annual allowance, but only if this is considered by the local tax inspector to be a legitimate business expense. Any contributions made by an employer in excess of the annual allowance will attract a severe tax penalty. Investments Investment options are largely similar to those previously in existence although for self invested pensions there have been a few changes, such as the inclusion of limited forms of residential property and a reduction in the permitted borrowing limits for property purchase. Benefits The way benefits are taken has changed, in that it is now possible to access your tax free Pension Commencement Lump Sum (25% for all new schemes although some older schemes can allow a higher limit) without having to buy an annuity or even draw an income directly from the fund. Benefits can currently be taken from age 50, although this rises to 55 on 6th April 2010. If an income is drawn, it is subject to a maximum of 120% or the annuity that a person of the same age and sex could purchase, according to tables issued by the Government Actuary’s Department (GAD). It is no longer necessary for an annuity to be purchased at age 75, but an income can continue to be drawn directly from the pension fund. This Alternatively Secured Pension (ASP) arrangement offers the scheme member the benefit that, on death, a profit does not accrue to the insurance company paying an annuity but is, instead, available to provide benefits for dependents or as a charitable or political donation. Under ASP benefits can be taken as follows: • Members must take an income of at least 55% of that calculated by using the “best annuity” rate for a person of 75. This rate will be controlled by the Government Actuary’s Department • There is also an upper income limit of 90% of the GAD rate. By doing this the Government has achieved its aim of ensuring that pension assets that could have been left untouched after age 75 must now be used for their original intention of providing a pension. There is a limit on the size to which pension funds can grow. This Lifetime Allowance has been set at £1.65 million for 2008/7 and is set to grow in future years. If your fund grows above this level when benefits are “crystallised” there will be a Lifetime Allowance Charge of 55% on the surplus. For those with funds already above £1.5 million on 6th April, partial (or Primary) Protection against the Lifetime Allowance Charge is available, but must be applied for before 6th April 2009. Those with funds below £1.5 million on that date, but who expect their funds to breach the then current Lifetime Allowance by the time they retire can also apply for Enhanced Protection, before 6th April 2009 however no pension contributions can be made after 5th April 2006, or the protection is lost. On death In the event of death before benefits are crystallised, the accumulated fund can be returned to the member’s estate, or distributed directly to beneficiaries in accordance with an expression of wish lodged with the trustees. In the latter case, this will normally be free of inheritance tax. On death after retirement, when an income is being drawn directly from the fund (called an unsecured pension), the balance of the fund can be used to provide dependent’s benefits in a number of ways or returned to the estate, subject to a 35% tax charge. On death after age 75 whilst in ASP any fund that is left can be used to provide benefits for a dependant, or given to a charity or political party; otherwise it will be treated as an unauthorised payment and subject to the unauthorised payment charge of 70% plus (potentially) inheritance tax, making a total maximum tax liability of 82%. Self invested pensions For many people with larger pension funds, the costs and relative inflexibility associated with insurance company pension schemes can be unattractive. We can help you arrange your own self invested pension, either through a Self Invested Personal Pension (SIPP), or a Small Self Administered Scheme (SSAS). Please ask for more details. |
