RETIREMENT PLANNING

It is generally accepted that retirement planning is about ensuring that you have sufficient financial resources to enjoy your retirement. Although most attention is placed on the provision of a pension, it is also wise to consider the timing of debt repayment to ensure the majority is repaid before you retire. This is especially important on any mortgage on your home.

Over recent years there has been considerable political comment and press coverage regarding the level of the State Retirement Pension. Large numbers of people believe that they will require more money after their retirement than the state pension can offer.

These feelings often lead to people beginning their long term planning with regular contributions into a pension scheme. Pension planning is normally a long-term commitment. The Government is trying to encourage more people to build up a pension fund of their own with the introduction of Stakeholder Pensions and changes to Contracting Out from the State Earnings Related Pensions (SERPS) or the State Second Pension (S2P).

In addition to considering your income in retirement, you may wish to consider provision of Health cover, or perhaps plan for how you are going to provide for your dependents.  You may even want to think about planning the effects of Inheritance Tax on your Estate and consider whether it would be wise to transfer a portion of your current assets to your children or grandchildren.

Tax Incentives

Pension funds in the UK benefit from significant tax incentives. These include allowing for any growth in the value of the pension fund to be free of tax. Also the current rules provide that a portion of the pension fund may be drawn in the form of a tax-free lump sum but this is only available at retirement.

Additionally any contributions made to the pension fund by either you, or your employer, will qualify for tax relief within permitted limits.

Where contributions are made to Stakeholder or Personal Pension plans basic rate tax relief is granted at source, meaning that you actually pay the net amount due, and the pension company reclaims the amount available in tax relief directly from the HM Revenue & Customs.

Tax relief up to 40% is available for those people that are liable to pay income tax at their highest marginal rate”