Earlier in 2024, we took a look at retirement planning. Food for thought, I hope, so perhaps now would be a good opportunity to revisit some of the key areas as a refresher.
Often, clients have multiple pots of pensions that they have accumulated throughout their working years. Some, where they have navigated various roles and employers, and some, where they have chosen to leave that corporate working environment and set up their own business or take on more of a consultancy role. It is important that we look to keep a handle on these ‘pots’ as essentially this is tax-efficient money that we have been investing, in some cases for a long period of time.
Pensions are one of the most tax-efficient forms of investing and therefore provide us with a valuable investment wrapper for helping us to prepare for our future. Recently, it was announced that the annual allowance limit for the tax year 2023/2024 has been increased to £60,000. The Pensions annual allowance is the maximum amount that can be paid into a pension each tax year. This Includes contributions from yourself, your employer, any third party as well as tax relief paid to the pension. However, you’ll only personally get tax relief on contributions up to 100% of your earnings. When looking at this from a business owner perspective, you can look to use pensions to manage large corporation tax savings, providing your accountant can confirm that your contribution meets the ‘wholly and exclusively’ test. Pension contributions made both from your business, or personally, are very tax efficient, making them a very attractive option.
Many clients will have unused annual allowances and often we can look to utilise a benefit called carry forward allowance to enhance your income tax, or corporation tax savings even further.
As an example:
A business owner who has been accumulating large sums on deposit and making a healthy business profit: provided they were a member of a registered pension scheme at some point in the previous three tax years, they can look to utilise pension carry forward allowance and could have a massive £180,000 worth of allowance for the current tax year. Providing your contribution meets all the criteria and assuming that your business is paying 25% as a corporation tax rate, this level of investment would provide a corporation tax bill reduction of £45,000, which can then be invested for the potential of capital growth and invested for later. Our clients find this an attractive offering when looking at their business planning, as they would much rather invest towards their future than lose the value unnecessarily in tax payments.
Statistics suggest that there is a staggering amount in lost pension pots across the UK. I don’t know about you but ideally, I wouldn’t want any of this to be any of mine.
My three top tips for not losing track of your accumulated pension savings are:
- Ensure that your address is kept up to date and accurate with each provider as you move home.
- When you change employment, keep a basic spreadsheet or word document with the pension plan details as a record.
- Seek advice and take advantage of a financial review.
Here at Avail Financial Planning, we can offer a no-obligation pension/financial review to help you to take stock and get a handle on your existing or new pension savings plans. Our priority is to help you understand any of the existing valuable benefits that are attached to your current pension arrangements, the types of funds that they are invested in, and to help put into real terms how your pensions will assist in providing for you and your family into your retirement.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.
