As the government continues to highlight the importance of saving for retirement, this issue should resonate amongst security-conscious contractors. Without the safety net of a company pension scheme, there is greater emphasis on pension planning that suits existing working patterns yet provides a solid foundation for the future. And putting off pensions payments when cash flow is tight can be tempting.
The changes that came into force on A-Day should revolutionise pensions planning, with the ultimate aim of making investment more straightforward and flexible, especially for those with personal or occupational pensions. On 6th April, eight different sets of taxation rules were replaced by just one set of guidelines for all pension types. These changes have made all pensions subject to the same tax treatment, regardless of type or when a scheme was started, provided the pension scheme adopts the new rules.
There are four main areas affected by A-Day, each with their own set of changes. To summarise these include:
- How much you can put in annually and over a lifetime
- What you can take out
- When you can take your pension
- What you can invest in
Sounds simple. But understanding how this applies to individual circumstance still requires a degree of knowledge, particularly with the added implications of contracting. Knowing the right questions to ask, such as how much you can invest, how this affects National Insurance contributions and when you can draw your pension are important first steps.
Finding the answers and then planning accordingly can seem like giant leaps however, those who took action before 6th April to benefit their situation can take a brief sigh of relief before the next wave of legislative change. But, for contractors caught unaware or who were waiting for the changes that A-Day brought, finding out about how the effects of the rise in retirement age, changes in options and new tax limits affect pension funds, needn''t be too challenging. It may even put a positive light on future finances.
Members of Tarpon can invest in a stakeholder pension scheme, which allows contributions to be made as cost-effectively and tax-efficiently as possible. Following A-Day, the benefits remain unchanged. For example, the tax relief and reduced NI contributions still apply; plan charges are still charged at 1%; and there are no penalties for early retirement or transfers. Regular payments can still be deducted from your salary and put into the scheme.
However, changes may still influence your plans. For example, if you have other pensions, are considering changing your contribution levels or were wanting to take early retirement. The relaxation in what can be included within Self Invested Personal Pensions (SIPPS) could also offer new avenues to invest. To find out more about how A-Day may have affected your current situation, or to maximise the opportunities that this may bring, contact our independent pensions advisors through your Business Manager, or call 0845 643 1580.
Useful websites:
HM Revenue and Customs
Financial Services Authority