Pension planning? Take actionPosted on: 26 April 2012 by Nick McBreen
Pensions are in the news again and with so many legislation changes over the last few years on private pension provision, it's always useful to have a look over all the options available to you.
Pension and retirement planning now needs a multi-dimensional approach and with many choices available, it can seem daunting and quite often leads people to put planning off for another day. Unfortunately, a comfortable retirement isn't something that happens by itself - it needs careful and active planning.
These days when it comes to retirement planning, we have a lot of choice, but as a trade-off, we also have to accumulate more money, in a wider range of assets, in order to be able to take advantage of the benefits such as tax allowances.
So what are the best actions to take when it comes to retirement planning? Does everyone have to do the same thing? By no means; although most of us still have the traditional view that a pension fund is the only way to plan for retirement, that doesn't have to be the case. There are many actions you can choose to take and your choices should be based on what you want for and from your retirement.
Planning for your retirement should be viewed and addressed in three clear and distinct stages:
- Accumulation years - the time you spend building up as much capital and asset value as possible, as tax efficiently as possible
- De-cumulation years - which should be the fun part of your retirement! This is the time you spend enjoying life after work and having the money to do it, while keeping the tax liability on your income as low as possible
- Succession planning - when you decide who, apart from the revenue, is the intended beneficiary of your wealth, created through a life’s work
How you approach these stages of your retirement depends upon a number of factors:
- What you expect your income needs for the future will be
- What you plan to spend your capital on
- What your income tax position is now and what it is likely to be in retirement
- Whether inheritance tax planning is necessary
Let's take a closer look at some of the options you have for accumulating funds for your retirement. The tax relief on contributions into pension arrangements is still very attractive, but other investment options have their plus points and should be included in the bigger planning picture.
Individual Savings Accounts (ISAs) may suit some people. For the 2012/2013 tax year, your ISA allowance is £11,280. Income generated is currently tax free but bear in mind that the funds in your ISA will be included as part of your estate for inheritance tax (IHT) calculations].
Offshore bonds are another possible option. Their key points are as follows:
- Your capital can be held in a series of tax-efficient 'wrappers' which match your attitude to investment risk
- They allow funds to 'roll up' outside the UK tax environment
- You can control when to pay tax and how much
- They can be a valuable tax wrapper for top up retirement savings
Shares may also appeal to some people as a part of their retirement plan. Although they are at the high end of the risk scale, they provide investors with potential for real capital growth and the option to benefit from dividend income.
Cash deposits can still form a useful part of your retirement plan. Current low interest rates, taxation and inflation reduce the value of these but they can provide some security in volatile times.
If you own a business, the sale of it, if timed properly can be a significant capital generator for retirement - especially when entrepreneur's relief is claimed to significantly reduce the capital gains tax (CGT) charge.
Residential and commercial property can provide useful income and lump sums in event of a sale.
With so many choices, it's always helpful to have a discussion with a good independent financial adviser, who can look at your circumstances and ambitions and help you take the right actions for the right outcome.
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