Retirement planning is one of the most important things you will ever do but many are deterred by confusing rules and jargon. Worse, these rules are subject to constant government changes leaving people baffled and confused. To combat this we have “Pensions Awareness Week” and the following should help:
Annual Allowance
This is the limit on how much anyone can pay into a pension each year & claim tax relief on their contributions. It is based on your earnings for the year and is capped at £40,000.
Lifetime Allowance
The maximum you can hold in your pension pots before triggering an extra tax charge is capped at £1 million. This shouldn’t be a problem for most people however if you are going to breach the £1 million mark take financial advice.
Defined Contribution Scheme
This is the most common type of pension, where your final pot depends on how much has been paid in and how well investments have performed. Also known as a money purchase scheme they are the bedrock of personal and company schemes. With a final salary “defined benefit” scheme your retirement income is based on years of service and your salary when you leave. These “gold plated” schemes are considered superior but costly.
Annuity
Basically an income for life that you buy with your pension pot at retirement. Annuities have slipped out of favour since the 2015 pension freedom reforms.
Tax-Free Lump Sum
From age 55 you can take 25 per cent of your pension as a tax-free lump sum or spread it over a number of years. This can provide a great option for people who want to pay off a mortgage or help children onto the property ladder.
Auto Enrolment
This government backed scheme provides employees with a pension. Employers must enrol eligible employees, although an individual can opt out.
By 2019 employers must pay a minimum 3% with an employee paying 4% and a further 1% is gained in tax relief. In simple terms, an employee 4% contribution will double to represent a total contribution of 8%.
When planning your pension there’s a lot to consider, so why not have a helping hand from our pensions expert, Paul Brassington, to make the whole process easy.
It’s free, friendly advice so contact us on 0161 443 4555 if you’d like to start saving for your future. You can also fill in the contact form below to book your free Pensions Review and a member of our team will be in touch shortly.
