INSPIRATION IN WEALTH MANAGEMENT
A pension fund is, typically, the mainstay of a client’s retirement portfolio. As such great care and attention should be given both to its accumulation and the best use of the money saved whilst in retirement. In terms of the accumulation of pension savings our clients typically have one or more of the following pension plans;
Personal Pension Plans
A Personal Pension plan is a common form of retirement saving in that it is straightforward to administer and relatively cheap compared to the more “exotic” options outlined below. They are administered by investment and insurance companies and the investment options are usually restricted to a limited number of investment funds including equity, bond and managed funds. They are most appropriate as “a starter plan” into which monthly or single payments are paid.
Small Self-Administered Schemes (SSAS)
A SSAS is a occupational scheme scheme where the members are usually all company directors or key staff. A SSAS is set up by a trust deed and rules and allows members / employers, greater flexibility and control over the scheme's assets.
Contributions made by the employer are unlimited and employer contributions are deductible against Corporation Tax provided that they are wholly and exclusively for the purposes of the employer's trade.
Loans can be made to the sponsoring employer but are subject to certain conditions set by HMRC.
As regards investments a SSAS can invest widely the options including
- Commercial property and land;
- UK quoted shares, stocks, gilts and debentures;
- Stocks and shares quoted on a recognised overseas stock exchange;
- Futures and options quoted on a recognised stock exchange;
- OEICs, unit and investment trusts;
- Hedge funds;
- Insurance company funds;
- Bank and building society deposits
- Gold bullion
A SSAS may also borrow to invest and to provide a member's benefit which has become payable. The maximum amount that can be borrowed is 50% of the net asset value of the scheme.
Self Invested Personal Pensions (SIPPs)
A SIPP has much the same characteristics of a SSAS in terms of investment flexibility but the rules follow not that of Occupational pensions but Personal Pensions. Investment possibilities include;
- Equities – stocks and shares quoted on the London Stock Exchange
- Stocks and shares quoted on an Inland Revenue overseas stock exchange
- Open Ended Investment Companies (OEICS) and Unit Trusts
- Gilts and other fixed interest securities
- Commercial Property and land
- Second hand endowment policies
Interestingly, minors can be members of a Group SIPP whereas they cannot be a member of a SSAS due to the necessity for members to be Trustees. Thus, a Group SIPP arrangement may be an ideal way for parents to begin a retirement savings account for their children.
No matter what form of pension is arranged, personal and employer contributions are limited. In the current tax year 2013/14 the annual allowance is £50,000, reducing to £40,000 for Pension Input Periods (PiP) that end during 2014/15. However, carry forward is available from previous tax years where any unused annual allowances can be carried forward to the current tax year, subject to certain conditions. Ultimately, unless individuals have succeeded in certifying a higher fund with HMRC, the maximum pension fund is £1.5m from 2013/14 reducing to £1.25m from 2014/15.
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Tax relief from 6th April will be at an individuals’ highest marginal rate. There are, however, strategies available for maximising tax relief for those who are proactive. The information has been provided on our understanding of current HMRC allowances applicable for the tax year 2012/13 which may be subject to future changes.
The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested. As property is a specialist sector it can be volatile in adverse market conditions, there could be delays in realising the investment. Property valuation is a matter of judgement by an independent valuer therefore it is generally a matter of opinion rather than fact. The value of investments in commodities may be effected by demand and fluctuations in their market place..