Independent Retirement Planning Advice in London

 

Pensions are among the most tax-efficient and effective ways to save for retirement.

 

UK Pension Provision falls into three major divisions:

 

•  State Pensions

 

•  Occupational Pensions

 

•  Individual Pensions

 

There are three main types of Individual Pension plans:

 

•  Personal Pension Schemes

 

•  Stakeholder Pension Schemes

 

•  Self-Invested Personal Pensions

 

Please follow the links for further information on the different types of pension schemes.

 

 

 

Pensions simplification

 

In 2004 the Labour government announced plans to rationalise the British tax system as applied to pension schemes; these changes are referred to as pension simplification.

 

The new single tax regime was adopted on 6th April 2006; this date is referred to as 'A'-day.

 

The aim was to reduce the complicated patchwork of legislation built-up by successive administrations which act as a barrier to the public when considering retirement planning. Ultimately the government wishes to encourage retirement provision by simplifying the previous eight tax regimes into one single regime for all individual and occupational pensions.

 

Main changes

 

Broadly the new regime will allow considerable freedom in the tax relievable contributions that may be made to pension schemes, and the assets in which they may be invested. It also however caps the size of tax favoured pension fund that may be accumulated by an individual. This 'lifetime allowance' has been initially set at £1.6M as of 2007/08. Funds accumulated in excess of the lifetime allowance may be subject to a tax charge of 55%. Transitional protection provisions have been made for individuals who may already have accumulated pension funds in excess of this amount.

 

•  Full concurrency - contribute to personal and occupational schemes at the same time.

 

•  Single tax regime - one set of tax rules.

 

•  Lifetime allowance - £1.6 million for 2007/08 tax year rising to £1.8 million in 2010/11.

 

•  Annual allowance - obtain tax relief up to £3,600 or 100% of income, whichever is greater. Maximum £225,000 per year rising to £255,000 in 2010/11.

 

•  Alternative secured pensions - possible to avoid purchasing an annuity even after age 75.

 

•  Single allowable investment regime - all schemes allowed to hold qualifying investments.

 

 
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In addition to the above changes, employees aged 50 or over will be able to withdraw 25% of their pension fund as a tax-free lump sum, whilst continuing to work. The age at which this claim can be made will increase to 55 in 2010/11. It will also be possible to withdraw another 25% tax-free lump sum upon retirement.

 

From April 6th 2006 , you will be able to invest up to 100% of your income within a SIPP Pension fund.

 

It is possible to invest in residential property via a Real Estate Investment Trust when launched in the UK. A REIT is a Collective investment scheme designed to invest in residential property. The stated reason for forbidding direct investment in property was to avoid tax privileged investments being enjoyed through personal use, e.g. investing in a holiday home for personal use.

 

SIPPs will be able to borrow up to 50% of the net value of the pension fund to invest in any assets (including residential property funds). In addition, SIPP members may also delay the requirement to buy an annuity after age 75, using an 'Alternative Secured Pension' (a type of unsecured income withdrawal) - keeping the bulk of their assets invested.

 

Pension savers who have already bust the £1.6 million pension threshold or are concerned about doing so are strongly recommended to seek professional advice on how to shield their savings from the lifetime allowance charge or, alternatively, how to maximise tax breaks under the current rules.

 

Pension simplification has created many other planning opportunities, whether you are self-employed or within a company pension scheme and whether you have any existing pension provision or not.  If you have old pension schemes which are no longer active, perhaps because you left the employer who provided the scheme, or if you have a pension contract you are not familiar with, you could be well advised to seek out advice about the possibility of transferring or at least optimising the benefits of these pension funds.  Also if you have a small pension fund or funds when you reach your planned retirement date, it is now possible you will be able to take out the whole sum as a lump sum, rather than buy an annuity.  The limit for 2007/08 is £16,000, which equates to 1 per cent of the lifetime allowance.