Saturday, March 17, 2012

More grey matter - something extra for many UK people planning to retire soon.

Quite why my brain is presenting such strangely grey matters instead of suggesting that I sit back and just watch The Jonathan Ross Show I do not know but another 'too good to miss' thing springs to mind. This is for the older folk...

UK tax legislation currently permits contributions to an occupational pension scheme to be deducted from gross pay before tax is assessed. So placing £1000 in your pension scheme will actually only cost you £800, possibly a lot less but let's keep the sums simple for now.

Now that is sort of OK if you're several years away from retirement but becomes really quite wonderful if you're retiring in a year's time. Even if your fund achieves 0% growth over the last year you get 25% on your investment. And you should be able to take a cash sum on retirement so you do actually get to take the £1000 in readies and that's tax free. At least 25%, in most cases substantially more. Tax free.

Yes, there are all sorts of limits, both to the proportion of your earnings that you can contribute and in the amount that can taken as cash but it's easy enough to get the figures that apply in your own case and there's bound to be some opportunity that someone expecting to retire soon can take advantage of.

Individual pension arrangement contributions can also be particularly attractive investments in that last year or so - the rules are a little different but have similar effect at the end of the day. Even if you don't have a bundle of cash to throw in to the scheme it could well be the case that it's well worth borrowing (at modest bank lending rates) as much as you can extract later.

There have been dark whispers of some taxation advantages being removed so, as with the stamps, I have to say that things may change or not work out so attractively in the future. This has, though, been the case for nearly 40 years and is pretty darned unlikely to disappear soon, unless Chancellor George Osborne loses his mind completely. You do also need to get good advice, especially if you're thinking of really maximising this beyond what most HR or Finance department staff should be able to deal with as normal practice.
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