A secure income for life
A Defined Benefit (DB) pension scheme is one where the amount paid to you is set using a formula based on how many years you’ve worked for your employer and the salary you’ve earned rather than the value of your investments. If you work or have worked for a large employer or in the public sector, you may have a DB pension.
With a Defined Contribution (DC) pension, you build up a pot of money that you can then use to provide an income in retirement. Unlike Defined Benefit schemes, which promise a specific income, the income you might get from a DC scheme depends on factors including the amount you pay in, the fund’s investment performance and the choices you make at retirement.
Annual and lifetime limits to consider
Tax relief means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.
Many of Britain’s over-55s say the massive changes to retirement income announced in last year’s Budget 2014 will have no impact on them, research from Aviva’s latest Real Retirement Report shows.
The run-up to the tax year end on 5 April 2015 is the perfect time to consider tax planning opportunities and to put in place strategies to minimise tax throughout 2015/16.
The typical Briton entering the workforce today can expect to have nine jobs, including one major career change, across 48 years of working[1].
Chancellor George Osborne delivered his Autumn Statement 2014 to Parliament on 3 December last year. Much of the commentary focused on weak public sector finances data in the context of strong GDP and employment growth.
Within the next decade, nearly half of those people (44%) due to retire will require professional financial advice to help them make financial choices, according to research[1] published by insurer Zurich.
Pensions have long been seen as a tax-efficient form of investment. The contributions that you pay into your pension will benefit from tax relief and aren’t subject to tax while they’re invested in your pension pot (although the tax credit paid with dividends can’t be reclaimed by your pension scheme). Contributions to your employer’s pension scheme (including any additional voluntary contributions you make) can be made from your gross pay before any tax is charged.
From 6 April 2015, there will be no restrictions on how much income you can withdraw from your defined contribution pension pot, but any income that is withdrawn (and it is possible to withdraw your whole remaining pension pot in one go) may be subject to income tax.
If you’re self-employed, you can claim expenses against your tax bill, but not all business expenses qualify so it’s important to make sure your claim is valid. Unless something you buy for your business is a capital asset, for example, a computer or machinery (which you claim for under different rules), you can deduct its full cost when working out your taxable profits. You receive immediate tax relief for the full amount.
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