Getting Ready To Retire

The changes to the pension rules announced in the Spring Budget were designed to dissuade higher earners from retiring early to avoid pension charges on high contributions but the new rules could have the opposite effect.

Individuals can now contribute up to £60,000 per year into a pension scheme and any excess allowance can be carried forward for up to three years.

Older taxpayers with substantial pension pots worried that they would be taxed at 55% when they started to draw their pension but this penalty rate has been removed. You can now build up any amount of savings in your pension fund.

It is also easier to carry on making pension contributions once you have started to access your pension benefits as the money purchase annual allowance (MPAA) has been increased to £10,000. You can thus take an annuity from one pension pot and continue to pay up to £10,000 per year into another scheme. Seek independent financial advice before deciding how or when to take your pension benefits.

If you run your own company you should consider the tax relief the employing company receives for any contribution it makes into your pension plan. The tax deduction is only given for the accounting period in which the contribution is actually paid – the cost cannot be accrued or pre-paid.

As the corporation tax rate is now 25% for companies with profits above £250,000 and a marginal rate of 26.5% applies on profits between £50,000 and £250,000, pension contributions can be used to bring corporate profits down to the desired profit level. We can help you work out the numbers specific to your business.

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