With recent announcements from the Treasury, the dark clouds of uncertainty surrounding the future of pension tax-relief have been lifted. This, unfortunately, is where the good news may stop because these announcements also confirmed that from April 2011 the maximum annual pension contribution limit qualifying for tax-relief will dramatically reduce.
In the following tax year (April 2012), pensions will experience a significant reduction in the maximum lifetime allowance (maximum permitted amount to be held in a pension).
When considering these alterations, as well as recent increases to the minimum pension age, and further proposed changes to the National Health Service pension scheme with escalation rates changing from RPI to CPI, does this strengthen your argument for a multi-pronged approach to retirement planning?
What does this mean? Ensuring you review your current retirement provisions is imperative. During the coming weeks I will be supporting my clients in reviewing their retirement provision to ensure they are in the best possible shape, they don’t fall foul of the new pension limits, and they do not suffer heavy taxation.
Don’t put all your eggs in one basket. This is a phrase you will have probably heard regularly throughout your childhood. It might sound old-fashioned, but in this simple phrase is the very essence of the argument for a multi-pronged approach to retirement planning.
The need to employ other types of investment may be a far greater reason than just to increase retirement income. You may wish to increase the flexibility of how and when you take your income. Or maybe you own commercial premises or a practice that would be better sheltered from certain taxes within a pension.
More important to most dentists is that by incorporating different investment types this will provide greater diversification, and possibly increased safety, from changes in legislation, such as we have seen recently.
Some of the alternative options that could be incorporated include:
Personal pensions
If annual allowances are not already used up, building additional retirement provisions separate to an occupational scheme may provide greater flexibility both pre- and post-retirement. Advantages such as the option to purchase commercial premises, or gain access to other types of investments, may bring with them their own merits.
ISAs
If planned correctly, ISAs can provide a fantastic solution to fulfill a future capital need without incurring capital gains tax on investment gains made. The limit for ISAs will increase in April 2011 by £480, raising the maximum annual ISA contribution to £10,680.
Alternative investments
If you are a more adventurous investor, venture capital trusts and enterprise investment schemes can provide tax savings and shelters in multiple forms, from reducing income tax to offsetting capital gains tax liabilities.
This is not an exhaustive list of possible choices. By selecting carefully considered and properly implemented alternative investment options, you could achieve greater flexibility, diversification of benefits, and possibly even a higher retirement income. As with any new financial investment or strategy, it is important that you seek professional advice to ensure it is suitable.
To contact Chris Marshall call 01244 322330 or email cm@arrowfs.co.uk