Interest rates & annuities
Are you retiring in the next 12 months? This information could be important to you
At retirement there are very important decisions to be made as to what to do with your accumulated pension fund.
The first decision is whether to commute a part of the pension fund as tax-free cash. In most cases this is 25% of the value of the fund. This cash is often used to pay off mortgages, go on holiday or just to add to your personal finances. The cash withdrawn will of course reduce the value of the remaining pension fund that can then be used to provide retirement income.
Retirement income can be provided through the purchase of an annuity or by drawing income from the fund which remains invested. Annuity rates are determined by life expectancy and interest rates and the recent downward shift in interest rates will inevitably have some impact on retirement income. The Government may be considering negative interest rates which would have further implications. Equally, investment markets have been very volatile following the outbreak of the pandemic and are likely to remain so for some time, so the option of drawdown is also challenging.
With all this uncertainty it is very important to take financial advice at retirement in order to choose the best option to suit your personal circumstances.
Tax relief for higher rate tax payers
If you are a high rate taxpayer are you claiming the correct amount of tax relief?
Taxpayers in Britain give away billions to the taxman each year by failing to claim all the pension tax relief to which they are entitled.
Taxpayers automatically receive 20% tax relief on all contributions. Employees who are higher-rate tax payers will need to reclaim any additional tax they are owed from the government.
Contact us for information on how to claim higher-rate tax relief on pension contributions.
How to build a bigger pension fund
Salary exchange allows the employer to save money and the employee to have higher contributions made to their pension fund by giving up salary in return for an equivalent pension contribution in its place.
The amount of salary exchanged results in lower PAYE and NIC deductions and these savings can be redirected into members’ pension funds to enhance their retirement income.
If you are not already using salary exchange please talk to us about the variations available to benefit both the employer and employees.
For queries on the above, and pensions please contact our Chartered Financial Planner, Christopher Booth by email or 07887 475383. For more information about private medical insurance or income protection please speak to our Protection Adviser, Emily Young by email or 07732 380913 and for general enquiries please contact our Employee Benefits Manager, Julie Coulton by email or 0191 227 5662.
Lycetts Financial Services provides independent, financial advice to corporate and private individuals and can help you on any of the above or any other financial planning needs.