The pensions lifetime allowance (LTA), the amount savers can place in their pension pot and still claim tax relief, is now down to £1m – down from £1.8m when it was set just five years ago in 2011-12. Any savings in excess of the LTA will potentially attract tax at 55%! So is it the prudent saver, the prudent investor, who is in danger of paying a tax penalty for their foresight and planning? Success its own ‘own goal’?
Let’s say you wanted to achieve a target retirement income in the region of 2/3rds of your remuneration received at the time you retire and that you had aimed only for that £1m threshold figure for your pension pot from which to derive your income in retirement. What would £1m buy in terms of an annuity purchased when you are aged 65 (remember annuity rates will vary in the future)? Currently about £45,000 per annum is a reasonable gross figure. That is 2/3rds of about £68,000. So if you think your final remuneration at 65 is likely to be greater than £68,000 per annum, then some additional savings/planning will be needed.
If you think you are not saving enough for your retirement, or you are in danger of breaching the LTA over the period through to your planned retirement date, or if you think you will need available resources greater than the LTA to fund your target retirement income, then now is a very good time to take stock and plan ahead. There are tax-efficient options open to you from which you can derive an income in retirement whilst maintaining access to your capital, and they can add a balance to your investments and pensions savings, as well as adding a spread to the investment types that help you achieve flexibility in both capital and income.
As always, if you would like to discuss any of the details contained in this article, please don’t hesitate to contact one of our qualified financial advisors at our Newbury office on 01488 608 686, or by using the quick contact form on our home page.
Please note, the value of investments, and the income from them, may go down as well as up. The levels and bases of taxation are liable to change.
Barry Fleming & Partners has grown from a tax advisory background into a broader business that encompasses investment management. Both things matter for wealth management, retention and creation. That expertise makes the company strikingly different from others.
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Barry Fleming & Partners offer independent financial advice covering ISA’s, Pensions, Tax, Trusts, Estate Planning, Inheritance Tax Planning (IHT) and other Financial Planning areas. Please don’t hesitate to call on 01488 608 686 and ask to talk to one of our financial advisors. Alternatively use the contact form on our home page.