Business owners often face the challenge of trying to maintain their living standards into retirement. Not an easy task given recent changes to UK pension legislation which make them even more restrictive, particularly prior to retirement age. Now, you can be the master of your own pension fund.
Q. It is often said by business owners that their business is their pension. Is this a valid statement?
Not so. Using figures compiled by the Life Office Actuary, most SME owners retire with a private pension of £1,400, excluding state benefits.
Q. It is often said by business owners that their house is their pension. Is this a valid statement?
A. No. Moving from a 4 bedroom to a 2 bedroom house generates enough capital to give an income of £1,050 pa on an annuity basis [source: Government Actuaries Dept.]
Q. To achieve average state earnings in retirement, how much would a couple need in their pension fund?
A. £560K. The average size of personal pension funds at retirement in the UK is £30K.
Q. What is the average state pension?
A. £5,311 pa
Q. What are the personal allowances for pension schemes?
A. For 2012/13, the annual allowance is £50,000 per person.
However, the introduction of the Carry Forward system will help clients who are able to save more than £50,000 in their pension this year.
Basically, any unused annual allowance from the three previous tax years can be carried forward into the current tax year, but only if you are able to fully use this year’s tax allowance.
For instance, if you contributed £100,000 into pension for 2011/12, and can contribute £50,000 for this year, you can technically contribute another £150,000 in this current tax year.
However, while this will be very attractive to some people, it’s not available to people who have just started a pension scheme this year.
Company directors will have scope to make large contributions still under Carry Forward, and for those making personal contribution, it should be noted that tax relief will be limited to 100% of the individual’s UK relevant earnings for that tax year.
Q. What is the lifetime allowance?
A.The lifetime allowance is £1.5M.
Contact us for further details.