Although the ‘Auto Enrolment’ juggernaut is now rolling on its way, it is clear that this on its own will not be enough to provide the sort of retirement pensions that most people would like or expect. Apart from the lucky few still in final salary schemes (mainly civil servants and other public sector workers) most people will be reliant on the size of pension pot they can build to provide their pension income in retirement. All the anecdotal evidence points to saving as much as you can for as long as you can to maximise your pensions savings pot and to obtain maximum tax relief whilst it is still available.
So why should you contribute now into a pension scheme sooner rather than later?
- To secure personal tax relief at the marginal top rate of tax and to secure full availability of your personal tax allowance. By use of the carry forward and pension input period rules substantial premiums, possibly in excess of £200,000, could be made before 5th April 2014.
- Employer contributions should be made before Corporation Tax Rates fall to a flat 20% in 2015.
- Sweep up annual pension allowance from 2010/2011 to avoid it being lost. £50,000 of premium relief is still available to be used by 5th April 2014. For a 40% tax payer, a £50,000 Gross Premium would be a net cost of £30,000 and dependent on age, could release an immediate £12,500 tax free lump sum.
- Pension contributions can potentially preserve the value of child benefit for the family rather than losing it because of the child benefit tax charge. This might be as simple as switching existing pension contributions from the party who earns least to the one who earns most. Child Benefit, which is worth £2,449 to a family with 3 children, is cancelled by tax charge if the highest earner exceeds £60,000 but no charge if less than £50,000. A pension contribution reduces income for this purpose. The effective “tax savings” on a £10,000 pension contribution could be as much as 64% for a family with 3 children.
- Consider a pension salary sacrifice before 5th April 2014 to maximise national insurance savings.
- If you are looking to start taking benefits under flexible draw down in 2014/2015, then this year (2013/2014) will be the last year you can make contributions.
It is never too early to make pension provision.
Rawlinsons are currently offering free expert pension reviews – to find out more please click here.