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This article appeared in Newsletter Issue 61- Forces News
We are always looking at ways of using the recent changes to pension rules for the benefit our clients in the Forces.
There is an article on the ‘A’ day rule changes on the next page of this Newsletter (click here for a reprint ) but what does this mean for you and your family in practical terms?
You can now, for the first time, make meaningful pension contributions outside of the Armed Forces Pension Scheme. For a 40% tax payer a pension contribution of £10,000 will only cost £6,000 after tax relief. The pension can be invested in insured funds or if you prefer you can have the flexibility of a Self Invested Pension Plan (SIPP) and run your own portfolio of shares and other investments. The money will grow free of any additional tax, either income or Capital Gains Tax although the 10% tax credit on UK dividends is no longer reclaimable by pension funds.
When you choose to draw the benefits which currently can be any age after 50 (rises to 55 in 2010) you can take 25% of the fund value as tax free cash and then if you wish you can leave the remainder invested in a pension drawdown contract or you can choose to take it as some form of taxable income. Another significant benefit which is particularly attractive to members of the Services is the ability to have protection policies written as a pension contract which will mean you get tax relief on the premiums paid. We at John K Miln and Company refer to this as Tax Deductible Life Cover. It aims to help protect the policyholder and their family from the financial consequences of terminal illness or death by providing them with a cash lump sum. Most Service personnel have a need for significant protection plans either to protect a mortgage or to protect the family or more often both.
So what can you save? Well, as the changes have just come into effect on 6th April 2006 it will take a little time for the market to develop but early indications are that you will be able to make significant savings. For example, when compared to a normal term assurance policy, a 40 year old non-smoking male taking out a new plan over 20 years with a sum assured of £100,000 could save 10% on premiums if he were a basic rate tax payer or about 30% if he were a higher rate tax payer. A 30% premium saving over 20 years will equate to a very significant sum.* If you wish to know more, you should call Tom Wandless or Kevin Rees your Forces Advisers, who can very quickly explain to you how much you can save. Call 01326 377990 or email Tom Wandless or Kevin Rees
* Regulatory Notice: Past performance is not necessarily a guide to future performance. The value of investments as well as income derived from them can fall as well as rise, and investors may not get back the full amount originally invested, especially in the early years.
