Don't let your pension be an old-age problem

Don’t let your pension be an old-age problem

In April this year wide-ranging reforms to the pension system will come into effect. So the next few months are an ideal time to take your pension plans off autopilot and consider how to maximize the benefits of having Yes, pension planning is complex and can be somewhat tiresome. But reviewing your pension plans and paying more into your pension in the next few months can provide both a short-term bonus in terms of tax relief (available at your highest rate of tax) and of course the long term benefit of more money for your retirement. Here are a few reasons why: You will now be able to access your tax-efficient pension pot from your mid-50s with much greater flexibility We all know pensions are tax efficient investments. The new pension rules allow anyone over 55 (this rises to 57 in 2028) to access their pension as they would with any other kind of investment, but with the additional benefit of receiving tax relief on contributions up to £40,000/year. Therefore it makes financial sense for anyone within sight of their 50s to prioritise pension contributions ahead of any other investment. Also bear in mind that if you are unsure of what your income level will be next year and are currently a higher, or additional, rate taxpayer any pension contribution you make now will secure tax relief at your higher marginal rate. Make the most of allowances & boost SIPP funds If you can afford to, it makes sense to make a contribution to your pension before this April when annual allowances (i.e. the amount you can invest tax free) will be slashed from £40,000 to £10,000 for anyone accessing their pension under the new flexible rules. You can also retain the larger allowance if you are already in capped drawdown before April (i.e. taking pension benefits without buying an annuity) or if you only take your tax-free cash after April. Under the new rules you are also allowed to carry forward up to £190,000 into your pension this year without triggering an annual allowance tax charge; however this will drop to £160,000 in two years’ time (if the allowance remains at £40,000). So if it’s possible for you, there are real tax benefits to swelling your pension pot now. Added bonus If you have a bonus in your salary package, you should consider investing a portion of it as an employer contribution into your pension. This extra contribution will not only maximize your tax relief and use of allowances, but also saves on both employer and employee National Insurance contributions, which could be used to further boost your pension pot. Take advantage of new inheritance tax rules At the moment, unused pensions attracted inheritance tax of 55%, but that changes in April. The new system will allow anyone who dies before age 75 to pass on their remaining pension tax-free. Over 75s can also pass on their pensions at marginal income tax rates. This means you can use your pension to shelter your savings from inheritance tax and allow your children and grandchildren to have increased benefit from your legacy. Taking maximum advantage of tax relief and carry forward allowances and safeguarding your savings from inheritance tax are all compelling reasons to review and pay into your pension before the end of the tax year, before then new system is introduced. Don’t let your pension become an old-age problem, act now. To discuss any of these savings in more detail or for more information on retirement planning or any aspect of our work please see our website or contact us.

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