Pensions & Annuities

Whether you are employed, self employed, a Company Director or a non-earner the tax concessions and relief available under this form of investment should not be ignored! Furthermore the underlying funds are a matter of choice and if you wish cash deposit funds may be selected for those that require 100% certainty of return. The underlying investment choices are now extremely broad and great care should be taken to ensure that the risk profile taken is suitable. In particular, risk should be reduced as retirement nears - we normally recommend that 5 years prior to known retirement 20% per annum be placed in low risk areas such as short term bonds/gilts so as to protect the fund value at retirement.

The information provided here is of a general nature and should you require assistance in establishing your current retirement income objectives you should seek professional advice. If you wish us to provide this please select the contact button that will lead you to our enquiry form.

Apart from the state pension applicable to all earners the basic forms of additional pensions are as follows:

• Personal Pension (Including Stakeholder) – available to all, including minors and those without earnings (subject to maximum contributions of £3,600 per annum)
• Self Invested Personal Pension – Allow the investor to select individual shares, other asset types, or commercial property as an investment maybe suitable for larger investors. Investors should be aware that unlike Personal Pensions provided by Insurance companies compensation protection here is limited to £50,000
• Company Pension – these can be contributory or non-contributory depending upon your employers generosity and benefits may be salary related ‘defined benefits’ with inflation linking, or as is now becoming more common, ‘defined contributions’ where you fund is invested in assets and the benefits dependent upon future investment performance.

The following link will direct you to an excellent website covering all aspects of pensions in precise detail The Pensions Advisory Service

Tax Advantages

• The investor is able to contribute up to 100% of earned income and benefit from Tax Relief at their highest marginal rate on all contributions up to £150,000 per annum from 2010 (there are short term measures in place in the interim). Thus, 40% tax relief is available now and it would appear that 50% maybe available in 2010. In other words the proportion of contribution falling in the higher rate at 40% will cost a net 60% i.e. £100,000 invested for a net cost of £60,000! Please note that non earners such as minors or the unemployed will still qualify for tax relief by way of paying net contribution of 20% less than the gross investment up to a maximum of £3,600 per annum. Furthermore, the payments may be made by a third party such as a parent/grandparent although tax relief is restricted to the beneficiary.
• The internal fund is able to grow free of all taxes save the dividend tax credit that is no longer reclaimable - this is an enormous benefit given that the investor has also benefited from tax relief on contributions

Please note that tax relief and rates are subject to change and that the Financial Services Authority does not regulate taxation advice.

Taking the benefits

You can take benefits at any time from age 55 (age 50 until 5th April 2010) but you must take the benefits at age 75 - between these ages you have the following options:

• Take 25% as tax free cash or not, and purchase an annuity in the open market thereby providing an income for life – this can be at a flat rate fixed for life or escalating to help combat inflation – or indeed include a widows pension. There are many options including higher annuity rates for those in ill health, and you should therefore take professional advice
• Segment your pension fund and take tax free cash in a planned way over a number of years from a number of segments (known as phased retirement)
• Take up to 25% as tax-free cash and enter a draw down option whereby you may leave capital invested and opt to take no income until age 75
• All pension income payments are subject to taxation at your highest marginal rate so for some it makes sense to leave capital invested in the tax free pension pot until it is required – phased retirement will allow for this