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Pensions 2014-15

Wednesday 16th April 2014

Exciting times to come in the 2014-15 tax year for pension investment………

The new tax year is upon us and after the changes announced by George Osborne in the recent spring budget, 2014-2015 presents an exciting year for pension investment and one which will bring “freedom and choice” for savers and those planning their retirement.

The key changes to Pensions from last month’s Budget

To recap, the most noteworthy points from the budget regarding Pensions include the following:

•As of April 5th the annual pension allowance has been reduced from £50,000 to £40,000. If you still have a large lump sum to invest and didn’t manage to catch the end of tax year deadline then you can still make use of carry forward rules to invest up to £140k in 2014/15.

•Anyone aged over 55 who has contributed to a pension scheme will be now be able to take the pot they have grown as a lump sum, subject to tax, to either invest or spend as they wish.

•Contractors are able to buy an annuity and have the option of taking 25% of the fund as tax free cash and still be able to transfer the balance to a personal pension ‘drawdown’ arrangement or encash your pension. The old 55% tax charge can now be avoided as Osborne will now charge tax at your highest marginal rate instead, saving even higher rate tax payers 15% tax.

•The guaranteed limit for ‘Flexible drawdown’ on final salary schemes has been lowered from £20kpa to £12k pa.

•Encashment is now possible as three pension pots of up to £10k at the age of 60 and above, previously this was set to two pots up to £2k over a lifetime.

•There is now an increase from £18k to £30k in the overall triviality limit so a Contractor can access the entire fund up to £29,999, of which 25% is tax free and the remainder subject to income tax.

•For those Contractors who have a ‘capped drawdown’ arrangement, the maximum income limit has been set at 120% of the governments ‘GAD’ income limit. This limit has now been extended to 150% of GAD.

These changes are potentially very far reaching and they put control firmly back in your hands as the investor. This demonstrates a clear signal that the Government wishes to encourage saving again.


Make the most of the new pension rules

In a recent survey by Canada Life 63% of workers believed they had not made sufficient pension contributions before the age of 65. As many as 1 in 4 believe they now need to work beyond 65 as they have a shortfall in their pension provision.

The average state pension income is only £8,774 which would represent a severe drop in income for every one of our Contractor clients. Since the last survey in 2012 at least 66% of employees were planning to work beyond 65. These results have been attributed to the recent years of economic difficulty plus an extension of life expectancy, and with an increased cost of living as more people are finding they are working beyond retirement age. In fact the average Brit now retires on an income well below the minimum wage.

After years of hard graft and the challenges of contracting, you may well dream of an early retirement. It is becoming even more necessary to make the right choices now to fund your retirement which is one of the biggest financial decisions as a Contractor you will need to make. These statistics may sound quite alarming, but can actually be easily avoided by planning for the future now. There will be a greater need to consider the investment strategy of your pension fund, and to manage the tax implications both in the approach to, and during retirement.

ContractorFinancials Active Management Service can get your retirement plans on track

Saving for the eventual day you decide to hang-up your keyboard and retire is one of the greatest investments you will make. Given average life projections are extending, it is probable that you are funding a retirement of over 30 years.

In addition to advice on a suitable pension vehicle ContractorFinancials also offer their clients a tailored portfolio service to help you gain the maximum possible return at a level of risk you feel comfortable with.

Their investment committee meets to review the construction of their client portfolios and gives quarterly feedback on areas such as asset allocation, geographic and sector allocation, performance and risk to help ensure your retirement plans remain on track at all times.

Your advisor will then also make contact on at least an annual basis to review your investment as due to changes in asset prices, or even perhaps a change in your personal circumstances, your risk tolerance may have changed.

To find out more about pension investment and how you can benefit from the tax savings on offer, call ContractorFinancials now on 0208 090 0702 or email 123contracting@contractorfinancials.com.

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