Maximising your retirement income

The gap between the amount of money that people are saving, and the amount they need to ensure a comfortable retirement, is a perennial problem. It is important to act now to help maximise your income in retirement, including making the most of the available tax breaks.

Investing in a pension scheme, whether a company or a personal scheme, allows you to enjoy tax breaks on your pension savings. There are tax reliefs as you invest and a tax-free regime for your savings. Your employer may also be able to contribute and obtain tax relief.

Scheme managers can provide pension forecasts to help you judge whether you are saving enough, and what additional savings you might have to make in order to generate the income you will need in retirement.

Pension contributions based on 2009/10 earnings must be paid by 5 April 2010. Tax relief is available on annual contributions limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance, and special annual allowance for those with annual income over £150,000 (see below).

The new anti-forestalling rules

In the 2009 Budget, the Government announced its intention to restrict tax relief on pension savings with effect from 6 April 2011 for people with taxable income of £150,000 or more. The relief will be tapered down until it reaches the basic rate of 20%.

Anti-forestalling legislation has been introduced to prevent those potentially affected from seeking to circumvent this change by increasing their pension savings in excess of their normal regular pattern, prior to the restriction taking effect.

For those with income of £150,000 or more in 2009/10 (or either of the previous two years) the new anti-forestalling rules mean that typically the amount which can be invested in pensions is capped at the pattern of investment already set at 22 April 2009. Those with regular pension savings may be able to invest at those levels and obtain tax relief at 40% this year, perhaps with scope to increase the level of investment to £20,000 per annum. Those paying irregular premiums may invest up to the greater of their average pension savings in 2006/07, 2007/08 and 2008/09 or £20,000, up to a maximum of £30,000. Note that the rules applying for 2009/10 and 2010/11 may also mean that a tax charge can arise for employees on employer pension contributions – talk to us about the new anti-forestalling provisions before acting.

We can help you with all aspects of financial planning, including compiling a forecast of your spending needs, post-retirement. Please call us for further advice and assistance.