Due to the complexities of the pension market, few of us understand or have the time to keep up to date with the changes and forces within the industry which shape our financial futures. However, those who are simply hoping to rely on the state may be in for a rude awakening.
It could be that you wish to either start planning for retirement and want to ensure your existing arrangements will meet your needs, or plan to retire soon and want to consider all the options available to you.
Pensions are among the most tax-efficient and effective ways to save for retirement, but working out how much to save and deciding which type of pension is best often feels like a complicated business.
The good news is that legislation aimed at making life easier for retirement savers has effectively shelved the eight previous tax frameworks for pensions.
The changeover means it should to be easier than ever to begin calculating how much you need to be saving for your future. The new rules also give savers far greater freedom in how and when pension benefits are to be taken.
The government provide tax relief on the contributions you make to your pension. This means that if you are a lower-rate taxpayer and you contribute £80 to your pension, the government will provide an additional £20 in tax relief, meaning £100 will go into your pension scheme. The news gets better for higher-rate taxpayers as the tax relief on pension contributions is made at the highest rate of tax you pay, so in order for £100 to go into your pension pot, a contribution of £60 is all that is needed.
Certain elements of pension simplification create even more generous tax breaks for some savers. For example, the old rules did not allow the plan holder to take tax-free cash from some schemes. Under the new legislation, up to 25% of the value of the fund can be taken as a tax-free lump sum in many cases.
Simplification should take, some of the mystery out of pensions, but with the new flexibility come new dilemmas for would-be savers, as well as for those already building up their retirement nest eggs.
For this reason, many would do well to discuss with a Chartered Financial Planner what steps they might need to take due to the new rules and how it affects their personal retirement planning. If you need advice, we can research and make appropriate recommendations from the whole of the pensions market.
A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.