Changes To Pension Regulations
Significant changes are being made to rules regarding how much you can save into your pension and how you can eventually take your benefits. Perhaps the most significant change is the removal of the need to buy an annuity by the age of 75 and the greater choice this gives you in how you secure your retirement income and what happens to the fund on your death.
Effective from April 6th, the maximum amount that you can save into your pension and receive tax relief is 50,000. Any employer contributions also have to be included in this amount. Whilst this level of allowance is more than sufficient for most people, you are able to carry forward any unused allowance from the previous three tax years to boost the amount on which you can receive tax relief.
Making a pension contribution reduces your taxable income and can potentially save you from higher rates of tax. Tax relief on your contributions will be at your marginal rate of income tax and so additional rate tax payers may be able to receive 50% tax relief. If you have taxable income of more than 100,000 then the tax savings can be even more significant. Individuals on this level of income lose 1 of personal allowance for every 2 earned over 100,000 resulting in tax rates of up to 60%.
Basic rate tax relief is given on contributions even if the contribution takes your taxable income below the personal allowance. This can be useful where one partner is a low earner but you wish to build up their pension fund in order to fully use their tax allowances in retirement.
Short term annuities, income drawdown and asset backed annuities as well as the traditional lifetime annuity with no cut off age are all options for securing your benefits in retirement. These options can be used in isolation or as combined to provide you with the income guarantees and flexibility to meet your needs. Depending on your selected choice, in most cases the fund can be passed on to your family even if you have no dependants at the time of death. The fund would be taxed at a rate of 55% but the risk of also paying additional inheritance tax on the benefit has effectively been removed.
Income drawdown has been an option for a number of years allowing individuals flexibility in the level of income they withdraw within specified limits. If you have a minimum guaranteed lifetime income of at least 20,000 (including State benefits) then you can make unlimited taxable withdrawals from your pension fund.
When considering funding for your retirement, don't forget that the State pension age is set to rise to 66 for men and women by 2020. The process will be gradual, beginning in December 2018. Before this starts, women's SPA must first come into line with men's SPA. This increase, which has already started, was originally planned to gradually occur between 2010 and 2020 but will now be accelerated bringing women's SPA to 65 by December 2018. State benefits will now be paid later than expected for anyone under age 57 as at 6th April 2010.
Effective from April 6th, the maximum amount that you can save into your pension and receive tax relief is 50,000. Any employer contributions also have to be included in this amount. Whilst this level of allowance is more than sufficient for most people, you are able to carry forward any unused allowance from the previous three tax years to boost the amount on which you can receive tax relief.
Making a pension contribution reduces your taxable income and can potentially save you from higher rates of tax. Tax relief on your contributions will be at your marginal rate of income tax and so additional rate tax payers may be able to receive 50% tax relief. If you have taxable income of more than 100,000 then the tax savings can be even more significant. Individuals on this level of income lose 1 of personal allowance for every 2 earned over 100,000 resulting in tax rates of up to 60%.
Basic rate tax relief is given on contributions even if the contribution takes your taxable income below the personal allowance. This can be useful where one partner is a low earner but you wish to build up their pension fund in order to fully use their tax allowances in retirement.
Short term annuities, income drawdown and asset backed annuities as well as the traditional lifetime annuity with no cut off age are all options for securing your benefits in retirement. These options can be used in isolation or as combined to provide you with the income guarantees and flexibility to meet your needs. Depending on your selected choice, in most cases the fund can be passed on to your family even if you have no dependants at the time of death. The fund would be taxed at a rate of 55% but the risk of also paying additional inheritance tax on the benefit has effectively been removed.
Income drawdown has been an option for a number of years allowing individuals flexibility in the level of income they withdraw within specified limits. If you have a minimum guaranteed lifetime income of at least 20,000 (including State benefits) then you can make unlimited taxable withdrawals from your pension fund.
When considering funding for your retirement, don't forget that the State pension age is set to rise to 66 for men and women by 2020. The process will be gradual, beginning in December 2018. Before this starts, women's SPA must first come into line with men's SPA. This increase, which has already started, was originally planned to gradually occur between 2010 and 2020 but will now be accelerated bringing women's SPA to 65 by December 2018. State benefits will now be paid later than expected for anyone under age 57 as at 6th April 2010.
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