After a lifetime’s hard work, and years of getting up at the crack of dawn ahead of a long commute, the thought of a well-earned, long and happy retirement is certainly an appealing prospect to men and women of a certain age. However, to ensure the finance side of life is as stress-free as possible, getting your affairs in order, and avoiding tax traps, is essential.
There is an excellent article in the Financial Times this week, which details five common pitfalls ahead of retirement – and as chartered financial planners with more than 25 years’ experience in helping our clients prepare for an exciting next phase of life – The Financial Planning Group are here to help ensure you don’t trip up when making key decisions. Here are five key considerations:
Being hit by the pensions lifetime allowance
If you are fortunate enough to have a large pension pot of £1m or more, the pensions lifetime allowance (LTA) should be a consideration which may trigger excess tax charges when you come to take your pension benefits. Protection options can often be implemented to lock in higher LTA benefits, so it is important to seek advice on what is best for your circumstances.
Paying tax on pension contributions
Tapered annual allowance rules were introduced in April 2016, which affect those on higher incomes, and although the tax deductible amount an individual can set aside each year for a pension remains at £40,000, those considering retirement need to guarantee they have considered all options available to them in terms of carrying forward unused allowances from previous years.
Look beyond your pension for alternative investments
There are many alternatives to placing all your eggs in one pension basket and, if you haven’t already diversified your investment strategy, a chartered financial planner will be able to advise you on the pros and cons of ISAs, Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs). Having the opportunity to sit and talk through these topics with an expert will ensure you have at least considered all the options before you retire.
Minimise inheritance tax on your estate
The FT article rightly states that; “If a pension is set up correctly to make use of recent rule changes, then if you die before age 75, pension assets can be received entirely tax free by whoever they are left to. If you die from 75 onwards the beneficiary will pay tax on these at their marginal rate as and when they draw on them.” Why would anyone want to overpay tax on their investments, or ensure their family fully benefits from any inheritance windfall available if you were to die early. Again, we are here to talk you through your options and lock in protection for your loved ones.
Don’t keep surplus funds in your taxable estate
Again, being financially savvy with your hard earned money should be a priority as you approach retirement age – especially if helping your children and other family members is important to you. The ability to buy a first property is a huge problem for ‘generation rent’, so why not help your loved ones in your lifetime, rather than expose your estate to avoidable Inheritance Tax? Knowing what you can, or can’t, give away, and how often, is key to getting the balance right, and we are here to help you make those kind of decisions.
Remember, with 25 years’ experience helping individuals, families and businesses to place their financial affairs in context with their future goals and aspirations, The Financial Planning Group are here to provide a simple, structured, disciplined and reviewable planning service. We will change the fundamental relationship people have with their money to give them confidence and clarity in their own future.
If you would like to like to arrange a consultation at our offices in the heart of Teddington, please call Tim Norris or Alan Clifton on 0800 731 7614.
You can read the full FT article here: https://www.ft.com/content/4193ef94-38cf-11e8-b161-65936015ebc3?segmentId=3244cfff-ec81-8192-274e-ba1d3f036ca0