A staggering 65% of UK adults either don’t have a pension or aren’t aware they do. Of the remaining 35% many have no idea what they are worth or the sort of retirement their pensions will enable.
From 13-17 September, it’s Pension Awareness Week and at Proposito we support this campaign, which highlights the importance of having a pension.
Here are four features that make pensions the essential foundation of everyone’s retirement.
1. Tax Relief. This is free money from the government. Everyone gets 20% (basic rate relief), higher rate tax payers can claim an extra 20% and additional rate tax payers an extra 25%, via self-assessment (or amended tax code). Tax relief is available on contributions up to 100% of relevant earnings, capped at an annual allowance (AA) £40,000 pa. Unused AA can be carried forward from the previous three years in certain circumstances.
2. Taxation. Pensions are very tax efficient. There is no income or capital gains tax on funds within the pension scheme. When it comes to getting your money back out again some of it is tax free (see below), the rest is taxed as income when withdrawn. Pension funds are outside your estate so are excluded from inheritance tax (as long as they are distributed within two years).
3. Pension Commencement Lump Sum. Also known as tax free cash, up to 25% of your pension holdings can be paid free of income tax (applicable up to age 75).
4. Death benefits. You can nominate beneficiaries of your pension, who can inherit any unspent pension funds in a pension of their own. They will pay no income tax on any withdrawals if death occurs before 75.
These are just four of the features that make a pension a fundamental part of effective retirement planning. To find out more get in touch email@example.com, or call our Cirencester office on 01285 708444.