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Retirement strategies

Retirement planning

Because the population is aging, state benefits have not been growing in line with earnings for many years and this means that personal retirement provision is absolutely essential, if you are to enjoy a reasonable standard of living when you retire.

Fortunately, you can contribute up to your entire earnings each year into a pension, provided that you do not go above the allowance of £40,000 a year set by the government. Your employer can top up your contributions to the annual limit even if this is more than you earn, but special rules now apply to those earning £130,000 a year or more.

All personal contributions are paid net of basic rate tax relief, so if you invest £800 a month, this will be worth £1,000 a month in your pension scheme. 40% rate taxpayers can also receive up to a further 20% in tax relief.

Even those with no income can invest £2,880 each year and the government will top it up to £3,600 in the form of tax relief.

Your money grows free of most income and all capital gains tax and when the time comes to retire (at any age from 55), you can take up to 25% of your fund as a (currently tax free) pension commencement lump sum. The balance is used to purchase an annuity or to provide an income directly from your pension fund. This is taxed as earned income in the normal way.

Currently, you have to purchase an annuity or use an alternatively secured pension, once you reach age 75, but the government has recently announced that this rule is to be withdrawn, leaving the more flexible rules in place.

You should always remember that the value of investments is not guaranteed and you could get back less than you invest.

For more information, please contact us.