June 2022

Are You Ready?

In a recent survey about retirement planning 63% said they intend to retire before the age of 60. Yet only 25% said that they would start saving at least 15 years before they retire. Either people want a very low income in retirement, or they have not considered just how much they need to save.

I love pensions because of just how much can be added by the Government for free, how much you can take out tax free, and how much you can do with them while the money is being saved.

Savings

Contributions receive a tax incentive at your highest rate of tax, plus savings on your National Insurance and the employer’s National insurance. Combined, that could be over a 68% tax saving!
You then receive 25% of the fund back, tax free, or more depending on when you take benefits.

It is possible to receive a £100 contribution for a net personal contribution of just over £40 if you are a high-rate tax payer. So, if you invest for a net cost of just over £40 then you deduct your tax-free return of £25, you have an invest of just over £15 equalling a £75 fund (ignoring costs and growth). No other zero risk investments I know can turn £15 into £75 almost overnight.
Given this, why are people not saving as much as possible as soon as possible?

The rates are obviously less if you are a basic rate 20% tax payer. But if you do not pay tax the government will still give you 20% tax relief anyway.

Tax Free

If you start taking benefits between working and retirement, you are still entitled to your personal allowance. Which means, in addition to the normal tax-free element, you can withdraw over £1000 per month, also tax free.

Our average risk Ethical Portfolio has doubled in value over the last ten years, net of fund fees. So the returns from an investment could be even better, subject of course, to the usual proviso that funds can go down as well as up and past performance is no guarantee of the future.

While the funds are invested, you can invest in many things. My pension bought and renovated my offices which have not only gone up in value but also receive a monthly rental income, in addition to investing in funds.

Whether you have, or want, a personal or a company pension, it pays to speak to a specialist pension adviser as soon as possible.

If set up correctly, your pension is not part of your Estate for Inheritance Tax, and net benefits are not covered by your Will, which means they can be paid to others quicker.