Submitted by Sestini & Co
| on Tue, 07/26/2016 - 12:42 | In Pensions
When the chief economist at the Bank of England admits he doesn’t understand pensions – and that no one else does either, you have to wonder what’s wrong.
Andy Haldane reportedly said, “I consider myself moderately financially literate – yet I confess to not being able to make the remotest sense of pensions.”
In remarks made at the New City Agenda annual dinner, he added, “Conversations with countless experts and independent financial advisers have confirmed for me only one thing – that they have no clue either.”
In our Top 10 of Things to Consider Before the End of the Tax Year in March, our second and third points both focused on the importance of pensions.
Figures from the Poverty Site show that:
- For all ages from 40 to 60, around a third of workers do not have a current [private or company] pension. Most workers aged 24 or less do not have a [private or company] pension.
- 2 million pensioners have no income other than the state retirement pension and other state benefits. This is around 18% of single pensioners and 6% of pensioner couples. It is a similar number to a decade ago. The Joseph Rowntree Foundation shows that the minimum income standard for a single pensioner is £182.98 a week, showing those receiving only a state pension would have a shortfall of around £27 a week.
With millions of people in the UK not investing in a personal pension, questions being asked in Parliament about big, thought-to-be secure schemes like BHS, and the options for investing in pensions (and withdrawing from pensions) confusing even the most-qualified, what should you do for the best?
Our top five tips
1. Contribute to your pension
- Tax relief on pension contributions will be restricted for Additional Rate taxpayers from 6 April 2016
- For the 2016/17 tax year there is a 12 month pension input period aligned to the tax year (the previous allowable variances of pension input period will no longer be possible)
- Pension contributions reduces your taxable income and can therefore have the added benefit of protecting your entitlement to Child Benefit or the Personal Allowance if you earn just over £50,000 or £100,000.
2. Contribute to your employees’ pensions
- If you own a business, making pension contributions to your pension can be a tax efficient way to extract profit from your business (there is a corporate tax deduction as well as the reduced personal taxable income).
- If employees choose to sacrifice some of their salary for pension contributions this will reduce both their and your tax and national insurance liability.
3. Consider the new options
- The new Lifetime ISA, available from April 2017 could be of interest if you’re between 18 and 40 at the time you open the account. Investors can save up to £4,000 per year to which the Treasury will add £1,000. The resulting £5,000 per year is invested until until age 60 (or until needed for the purchase of a first home). Assuming the funds are not withdrawn early/for the wrong purpose, the entire amount can be withdrawn tax free.
4. Maximise your ISAs
- You can save up to a total of £15,240 in the current tax year into a cash ISA and a stocks and shares ISA. From April 2017 this rises to £20,000 and includes the Lifetime ISA investments within that figure. The savings account interest is tax free and the income or capital gains on the investment is tax free.
5. Start a pension for your children
- Saving into a stakeholder pension for your children or grandchildren can help them to grow a sizeable pension pot and any money you put into the pension for a child will be supplemented by 20% from the government. You can pay up to £3,600 a year gross into a pension for a child even when they aren’t earning. Remember that the child takes charge of the pension at 18 and can withdraw it from age 55.
If you would like to discuss any of the points detailed above call us on 01761 241861 or email us. We would be pleased to advise you or to invite you into our offices in Paulton.