RECENT surveys have shown that as few as one in four adults are making contributions to pension plans, while half of those are investing less than £50 per month. With the state pension unlikely to meet our needs in retirement, these statistics are worrying. After a long working life, most of us want a comfortable retirement, but the plain truth is that to secure the income we need we must begin planning for our retirement as soon as possible in our working lives, and keep those plans under regular review.
Care needs to be taken to ensure that your retirement plans do not conflict with your other personal and business goals. On the other hand, retirement planning can give an edge to your business plans - for example, if you need to purchase business premises, have you thought of using your pension fund? The purchase is funded by your contributions, which are made net of tax relief. Your business can claim tax relief on rents paid to the fund, and income and gains of the fund are largely tax free.
Pensions
Retirement savings can take many forms. We can guide you through the options, helping you with the complexities of setting up personal and company pension plans, and alternative investment strategies to run in parallel with more traditional schemes.
For many, the company pension scheme is an efficient form of investment for retirement, and employers will often contribute to company schemes. Stakeholder pensions, to be introduced from April 2001, are intended to attract those on lower incomes.
For those not in an employer pension scheme, retirement annuity (RAP) and personal pension (PPP) policies have been the traditional choice. Contributions, subject to limits, have qualified for tax relief at up to 40%. Where maximum contributions have not been made each year it has been possible to carry forward the unused entitlement for up to six years, allowing large intermittent contributions, but new rules come into effect in April 2001.
From April, it will no longer be possible to carry unused PPP entitlement forward, nor to carry PPP premiums back. However, as the new rules do not apply to the older style retirement annuity policies, those with RAPs will be able to continue to top up their contributions from time to time, as before.
Alternatives to pension planning
In looking at savings, it is important not to 'put all your eggs in one basket'. Amongst the many alternatives to pension policies and pension schemes, Individual Savings Accounts (ISAs) received a boost earlier this year when the Financial Services Authority reported that many basic rate taxpayers investing in CAT ISAs would do no worse than those investing in a personal pension policy. The flexibility of ISAs means that they can also prove to be a better investment for those with less ambitious retirement plans, those looking for shorter-term savings vehicles and those who are not regular savers.