Page 63 - Phonebox Magazine February 2010

Finance Matters
brought to you by Advison Independent Financial Advisers
Are your pension contributions building up a tax problem for the future?
Contributions to a pension scheme have a number of advantages to them. Firstly, they attract tax relief, although there are limits to this for those on very high earnings. You are also able to take 25% of the fund at retirement as a tax free cash sum. One further, practical advantage is that the funds are tied away until you are at least aged 55, except in a few exceptional cases. Whilst this may seem like a disadvantage, most advisers would argue the opposite, as it means the funds cannot be dipped into for other purposes, leaving individuals with little or no pension when they wish to retire.
Perhaps the greatest advantage from a tax perspective is to those that are paying one rate of tax now but are likely to pay a lower rate in retirement. Typically this would be someone who is a Higher Rate Taxpayer at present and will therefore attract 40% tax relief on their pension contributions. However, when the same person retires as a Basic Rate Taxpayer they will only pay 20% on the pension they receive.
One area of pension planning that is often over looked, however, is the split of contributions between a couple. It is often the case that one of a couple will be a much higher earner than the other and will consequently build up a much higher level of pension benefits during their working life. When the couple then retire, the situation can arise where one of the couple receives income at a level above the Age Related Income Tax Allowance meaning that they only receive the standard Personal Allowance and pay 20% on everything else. In the meantime, the other member of the couple may be receiving so little pension that they do not even
use up their Personal Allowance, let alone their Age Related Allowance.
This discrepancy can be reduced by making contributions into the lower earner’s name. Even if they have no earnings they are still able to contribute £3,600 gross a year (£2,880 net). One particular area where this situation is exacerbated is when the higher earner is placing further funds into a company pension via Additional Voluntary Contributions, which could be redirected into the lower earner’s name. You need to be aware, of course, that the level of tax relief may be higher for one of the couple, although as already mentioned this may in the long run be less tax efficient, depending on the overall level of income at retirement.
Exactly how you should proceed at this stage can be complicated and you have to take into account a number of factors. We would, therefore, urge you to seek advice on this.
Advison has a wealth of experience in helping clients with different pension, investment and tax planning strategies, ensuring that a well constructed portfolio provides the diversity required. We are also able to review your pension and investments so that they remain in line with your personal circumstances and objectives.
Unlike many IFAs, Advison not only provides the initial advice you require but also produces regular personalised reviews of your Investments, Pensions and Protection Policies, enabling us to ensure the assets you hold are still relevant to your circumstances.
Advison is a small, friendly and reliable firm specialising in Investments, Retirement Planning and IHT Mitigation.
We offer a return to the traditional values only a smaller company can offer, a service we find
is appreciated by the more discerning client. We are happy to see you in the comfort of your own home or at our office in Woburn Sands which also has free parking.
All staff at Advison are either AFPC or FPC qualified.
------------------This is your opportunity to speak with the experts------------------
• Previously voted Planned Savings Magazine National Estate Planner of the Year
• Regularly quoted in the national press for over 10 years
• Have appeared as financial planning experts on BBC, Sky, CNBC, Bloomberg, Simply Money and the Money Channel • Choice Magazine’s Pensions and Trusts expert
Call Kevin or Andrew for a preliminary chat or to arrange an appointment.
Shelton House, 4 High Street, Woburn Sands, Bucks. MK17 9SD T: 01908 285690 E Mail: ifa@advison.co.uk
Advison ltd is an appointed representative of IN Partnership the trading name of The On-Line Partnership Limited which is authorised and regulated by the Financial Services Authority. Registered (England) No. 5009271
Phonebox Magazine 63