Pension Planning – What you need to know
Whilst the pension legislation landscape continues to alter, one principle remains constant: we all need to keep an eye on our pension plans to help ensure we’re making adequate provision for the future.
Successive governments have, quite rightly, placed considerable emphasis on the need for us all to save more for retirement. There have been a number of steps in this direction, including the introduction of auto enrolment, which gives many more workers their first opportunity to accumulate savings for their future in a workplace scheme.
Employees who are not currently saving into a workplace pension will be automatically included in a scheme, although they have the right to opt out should they wish to.The government is introducing the changes on a gradual basis. A contribution of 1% of salary from both employee and employer will be increased in stages to 4% in 2018 for an employee, 3% from the employer in most cases and 1% tax relief from the government. Some have argued that the 8% savings figure this gives won’t necessarily prove to be enough to fund a decent retirement, but it has to be viewed as a step in the right direction and contribution levels will be subject to review.
INCREASE IN THE STATE PENSION AGE
With the continued increase in life expectancy, the government has to find a way to manage the overall pension bill. To that end, the equalised state pension age scheduled for 2018 is set to increase in stages from 65, eventually reaching 68 between 2044 and 2046.
MOVES TO ENGAGE MORE WORKERS
The tax treatment of pension contributions has long been viewed as a major incentive to save for retirement. In a move designed to make the taxation of pensions simpler and more easily understood by all, the Chancellor has announced a Green Paper entitled ‘Strengthening the incentive to save: a consultation on pensions tax relief’. Pensions, he said, could be treated like Individual Savings Accounts (ISAs) for tax purposes.
This review will consider whether the current system that sees pension contributions receiving tax relief, funds being exempt from tax while invested and taxed when paid out, could be overhauled. This could be replaced by a system where contributions don’t receive tax relief but are tax exempt while invested & tax exempt when paid out. The government’s consultation closed on 30th September and the outcome will no doubt make interesting reading.
TAKING THE RIGHT STEPS
It makes sense to:
- Speak to us here at Logic Wealth Planning about arranging a regular review to help ensure you’re keeping your retirement plans on track.
- Make pension saving a priority.Think about topping up your contributions whenever your financial circumstances permit- remember, within limits they attract valuable tax relief.
- Know your state pension age and get a forecast of how much you’ll receive.