Planning for your ‘golden years'
As we are regularly reminded, the gap between the amount of money that people are saving and the amount they need to ensure a comfortable retirement is an ongoing problem. It is now more important than ever to take steps to help maximise your income in retirement, including ensuring that you make the most of the tax breaks that are available to you.
Although many people have looked to parallel investments for retirement (for example, second homes and buy-to-let), investing in a pension scheme, whether a company or a personal scheme, allows you to enjoy tax breaks on your pension savings. There are tax reliefs as you invest and a tax-free regime for your savings. Your employer may also be able to contribute and obtain tax relief.
Scheme managers can provide pension forecasts to help you judge whether you are saving enough and what additional savings you might have to make in order to generate the income you will need in retirement.
For pension contributions to be applied against 2011/12 income, they must be paid by 5 April 2012. Tax relief is available on annual contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance.
The basic annual allowance is a £50,000. But in part to reflect the impact of the cap on higher earners between 2009 and 2011, and in part to reflect the simple fact that for many self-employed people earnings and available cash vary from one year to another, it is possible to adjust your annual allowance to the fact that you have not maximised contribution levels in the last three tax years. This effectively means that you can contribute up to £50,000 for the current tax year, as well as use any unused allowance from previous years. Provided you have the salary to justify the contribution, you could, in theory, make a pension payment of £150,000 before 5 April 2012!
The rules are complicated, but we can calculate your personal pension savings cap, as well as advising on all aspect of financial planning, including a discussion of your spending needs, post-retirement. For advice on all aspects of financial planning, please contact either Rob MacKenzie rmackenzie@littlejohnllp.com or Mark Quaye mquaye@littlejohnllp.com at Littlejohn Wealth Management.
Littlejohn Wealth Management Limited is authorised and regulated by the Financial Services Authority.
