Pensions - plan ahead - don’t take a chance on your future!

There are many opportunities for pension planning but the rules can be complicated. Furthermore the rules on the taxation of pensions changed very significantly in April 2006. The new regime includes a single lifetime limit (initially set at £1.5 million) on the amount of pension saving that can benefit from tax relief. This lifetime limit is measured when pension benefits are taken. There is also an annual limit on the maximum level of pension contributions (initially set at £215,000).

Pensions have received a particularly bad press in recent times for a variety of reasons. However the tax relief on pension contributions, still at 40% for a higher rate taxpayer, is attractive. Pension planning therefore forms an important part of a year end tax planning review.

The self-employed or those in non-pensionable employment obtain tax relief for payments under personal pension contracts. Individuals can obtain tax releif on contributions up to £3,600 (gross) per year with no link to earnings. This makes it possible for non-earning spouses and children to make contributions to pension schemes. Further contributions can be made up to 100% of earnings, generally referred to as net relevant earnings.

Different rules apply to those paying old style ‘retirement annuity premiums’ under policies that started before 1 August 1988.

Family company directors should consider making additional employer’s contributions to existing company pension schemes. If a spouse is employed by the company, consider including them in the company pension scheme or setting up such a scheme for the purpose. Even where salary levels are modest, such a scheme can provide significant benefits.