If you’re self-employed would you like to reduce the profits of your business but still have money available for your benefit?
If you’re a higher rate tax payer, would you like to be able to put money aside that could reduce your income tax liability?
If you’re employed how would you like an investment that has an immediate 20% boost?
There is one plan that can do all of the above – a pension!
Most people think that a pension is about providing an income when they retire and ultimately it can. More important is how you can use this, much misunderstood, plan to benefit you now whilst you are working. Stop thinking about it being something for the long term, the short term benefits are as significant.
A pension should be viewed as a useful planning tool to reduce tax. If well managed it can one day provide you with a tax free lump sum and various options for income.
Finally a pension can also be passed to your family avoiding inheritance tax.
So the much maligned pension can save you tax now, give you an income later and avoid inheritance tax – what’s not to like?
Start as soon as you can
As you can see there are lots of reasons to use a pension, ultimately you will want to draw the money back to provide an income either on a regular basis or an ‘as needed’ basis. The earlier you start to save into a pension the less you will have to save. As you can see from the graph if you want to build up a fund of £200,000 and start saving at age 20 it will cost you £71 per month whereas if you wait until you are aged 40 you will need to save £270 per month. While if you want to build up a fund of £350,000 you will need to save £124 per month at age 20 but £472 per month at age 40.
If you are a 68 year old male a fund of £200,000 would provide you with a tax free lump sum of £50,000 and an annual income of approximately £11,000. Whereas a fund of £350,000 would give you a tax free lump sum of £87,500 and an annual income of approximately £20,000. So even these levels of saving will not produce a luxurious retirement. Naturally the actual returns will depend on the investment returns which should of course be appropriate to your attitude to risk.
The pension message is definitely – don’t get hung up on the scheme being for your retirement because there are so many benefits to be achieved whilst saving. When you decide to retire make sure that you have saved sufficient money and start early!
If you would like to find out how you can use a pension plan for one or more of the above reasons contact Savvy Financial Planning from our website or call today – 0845 680 8910.