Wealth management - make the most of opportunities while you can

05 December 2015

05 December 2015 by MHA MacIntyre Hudson

Governments come and go, but as far as managing your personal wealth is concerned, it is generally advisable to stick to the fundamentals of good financial planning.

Pensions remain tax-efficient – but beware the catches

A pension fund remains the most tax-efficient way of saving for retirement – you get tax relief of up to 40% on contributions and your fund can grow free of any tax. When you access your money you can take up to 25% tax-free, but you pay income tax on any amount you take above that. 

There are, of course, some catches. To benefit from the tax relief you can only invest up to £40,000 a year. This falls to £10,000 if you have already accessed your pension fund under the new pension freedom rules. 

The other catch is that as of April 2016 you are likely to have to pay 55% tax on any amount over £1 million (the lifetime allowance) in your fund when you start accessing your fund. In other words the tax-free benefits of a pension fund are being limited to £1 million. This may sound a lot, but a pension fund of £1 million generates income of £26,000 - £50,000 a year, depending on how you generate the income and assuming up to 5% yield. 

It makes sense to make the most of current contribution levels while you can – they may be cut further – while making sure you stay within the lifetime allowance.

Other ways of saving for retirement – or for other purposes

If you want – and are able – to save more, you should consider putting your money in an ISA.  There is no tax relief when you invest, but you don’t pay any additional tax on income or growth when you access your money. An individual can save up to  £15,240 in an ISA this tax year, so a couple can shelter up to £30,480 a year from future income and capital gains tax. Most investment funds are available as ISAs. Cash accounts are also available. While they are less volatile than stocks and shares ISAs, they currently pay paltry rates of interest.

Time to start drawing your pension?

If you are 55 or over and you have a defined contribution pension, whether from previous or current employers, pay AVCs or have taken out a personal pension you can benefit from the new pension freedom.

While you may briefly be tempted by the Lamborghini option, you will want to secure the income you need and that it will last for the rest of your life. This involves making some difficult decisions.

The government is offering free guidance, under the Pensions Wise brand, to help you understand your options. However this does not provide comprehensive advice that takes into account your particular situation and needs. For advice and recommendations specific to you, you need to talk to an independent financial adviser who has detailed knowledge of pensions.

The FCA does not regulate all forms of trust and tax planning. The value of your investment and the income you receive from it can go down as well as up and there is no guarantee that you will get back as much as you paid in.

For further information please contact a member of the team, who will be happy to assist you with your enquiry.