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Retirement Planning

Planning for retirement is probably one of the most important things that we do, because upon decisions made while working will depend the standard of living enjoyed (or not) later in life.

Retirement planning

In simple terms, pensioners have been getting progressively worse-off, compared with those in work, for more than a decade because wages usually rise faster than inflation.

Because of this, personal provision is essential and the government wishes to encourage more of us to save for our own retirement and changed the rules in April 2006 so that everyone can now potentially invest a substantial amount of money towards their retirement.

Anyone (together with their employer, if they have one) can invest as much as they wish into any number of pension schemes. However there is an annual allowance beyond which no tax relief is available, set at £40,000 for 2018/2019. This amount can also be reduced for certain high earners or those having flexibly accessed money purchase pension schemes.

For personal contributions tax relief is limited to earnings from trade profession or employment, where this is less than the annual allowance. If employer contributions are made in excess of the annual allowance a substantial tax penalty applies.

Tax relief on contributions is allowable for everyone. For people with little or no earnings, tax relief is available until total contributions for the year reach £3,600. For all others, tax relief is available up to 100% of earnings (subject to the annual allowance) at the highest marginal rate of tax they pay. Any contributions above the annual allowance will trigger a tailored tax bill that will be levied on the individual.

The total fund must not rise above a “lifetime allowance” set at £1.03 million (2018/2019). If the fund does rise above the lifetime allowance, a substantial tax charge will apply.

At retirement

Under the new rules everyone is entitled to a lump sum (currently free of tax) of up to 25% of their pension fund (subject to a maximum of 25% of the lifetime allowance). This can be taken at any time from age 55 even if they continue working and do not draw an income from their pension.

THE VALUE OF YOUR INVESTMENT CAN GO DOWN AS WELL AS UP AND YOU MAY NOT GET BACK THE FULL AMOUNT INVESTED. LEVELS AND BASES OF AND RELIEFS FROM TAXATION ARE SUBJECT TO CHANGE AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR. THE FINANCIAL SERVICES AUTHORITY DOES NOT REGULATE TAXATION AND TRUST ADVICE AND WILL WRITING.