Now is the time to make smart year-end retirement planning decisions

Time is ticking away to make smart year-end retirement planning decisions. It’s common knowledge that increasing our retirement savings will better prepare us for retirement. But in addition to saving for retirement, it’s also important to maximise on other ways to improve our retirement finances in 2016 and beyond. We at Hutt Professional have financial advisers who would  be able to offer you the independent financial advice you need on your retirement planning.

Larger pension pots
Although funds invested within a pension can grow tax-free, there is a limit (the lifetime allowance) on the total amount you can hold in pension pots, with funds in excess of the limit being subject to penalty tax charges when you take pension benefits that exceed the limit.

The lifetime allowance reduced from £1.5 million to £1.25 million from 6 April 2014. However, affected individuals can now elect for ‘individual protection 2014’ (IP14) to preserve their individual lifetime allowance at the lower of £1.5 million and the actual value of their pension fund at 5 April 2014 (the standard lifetime allowance will apply if it becomes greater than the IP14 figure). The option to make the IP14 election will end on 5 April 2017.

If the total of all your pension funds is likely to be at or near £1.25 million by the time you retire, you should seek immediate professional financial advice on whether opting for IP14 is appropriate. To be eligible for IP14, total pension benefits must have exceeded £1.25m on 5 April 2014. The lifetime allowance will reduce further to £1 million for 2016/17, and a similar protection option will be available.

Individual Protection is also available to individuals with enhanced protection and fixed protection (FP12 or FP14). In all cases where the individual has enhanced protection, FP12 or FP14, this will take precedence over Individual Protection, with Individual Protection being the fall-back position should the other form of protection be lost.

Tax-free pension contributions
For employees, particularly those paying basic-rate tax, pension contributions made by your employer are tax-efficient, as there is no tax to pay on this benefit and the employer can claim a business tax deduction. If you own the company, this can be a tax-efficient way to extract value.
It is often worth setting up arrangements where employees exchange some of their salary in return for a larger pension contribution made by the employer. This saves on National Insurance Contributions that would have been paid by both employer and employee, and the savings can be passed on as higher pension contributions. However, for 2016/17 and later years, this may not be effective for high earners. With regards to pension contributions made on their behalf by employers as a result of salary sacrifice arrangements started after 8 July 2015, the income sacrificed will be added back on as part of threshold income to establish whether threshold income exceeds £110,000. Tax relief on personal contributions is restricted if threshold income exceeds £110,000 and adjusted income exceeds £150,000.

If you would like to seek independent financial advice on your retirement plans or on your pensions or on a number of pensions you may have, we at Hutt Professional have financial advisers with many years of experience who are also highly qualified who would be more than happy to offer you the independent financial advice you need. If you are located in Leamington Spa or surrounding areas please do not hesitate to contact us.


Source:   12/04/2016