Changes to pension legislation and how they can benefit you

Our Managing Director Stuart d’Ivry offers help and support in relation to anything financial.

The recent change in pension legislation has really provided some new opportunity for both employees and business owners who wish to save tax efficiently for their retirement.

I often get asked how much individuals should be saving for their retirement and, whilst we have the ability to cashflow forecast to give clients an idea of how much they should save, the simple answer is as much as possible.

I continually still sit in front of clients who have decided not to invest in pensions due to their historic restrictions. For many, they were simply not exciting enough but current legislation certainly offers much more flexibility to investing for your retirement. Nowadays a pension is simply a savings account that HMRC offer significant tax advantages for investing into throughout your lifetime. Historically, the main reason individuals did not value pensions was the fact that in retirement the income was driven through a purchase of an annuity. This fixed income felt restrictive to most and, in many cases, would cease on death. You could understand the frustration this would cause if an individual had saved all their life to obtain an income and then unfortunately passed away prematurely. This is no longer the case, and with the introduction of flexible access drawdown a few years ago, individuals now have the comfort that every penny they saved for their retirement will be used by them, their spouse or, if there are funds remaining on death, their children or even grandchildren. Suddenly pensions became interesting again.

Recent tax laws have further increased the opportunity to benefit from saving into pensions. Individuals can save up to £60,000 into their pension on an annual basis, as well as being able to benefit from any unused allowance for the last three years.

If we take a director of a successful business that generates a £200,000 net profit per annum, that individual could potentially place £200,000 into a pension and reduce their corporation tax bill from £50,000 (25%) to Zero! The money has also moved to the directors’ personal name with no immediate personal tax charge.

This works slightly different for an employee but with similar benefit. An employee would receive tax relief on any contribution into a pension at the basic tax rate of 20%. So for every £1,000 personally placed into a pension your pension would grow by £1,250. If you are a higher or additional rate taxpayer, you could then claim a further 20% or 25% back on your tax return. Therefore, if you are an additional rate taxpayer in theory it will cost you £800 to place £1,250 into your pension. A £450 uplift on value on day 1! Now that’s the type of savings returns that we like to see.

It gets better! For clients and business owners out there, who have been saving into their pensions for years, the finance bill that removed the lifetime allowance charge from the 6th April 2023 is even more exciting and this itself brings with it some really interesting financial planning options. For further information and advice in this area please get in touch.

Finally, a word of warning; I would recommend anyone considering investing in pensions or any other financial products receives independent financial advice. Certain individual circumstances may change the scenario above and it is therefore important to obtain advice from a suitability qualified individual.

So, who are Pure Wealth?

Pure Wealth are an independent financial advice practice offering holistic whole of market advice to individuals and businesses across South Wales. We are not tied to any company or provider and will work in partnership with our clients to offer bespoke financial planning typically on an ongoing basis. Pure Wealth is part of the wider Pure Advisory Group, which consists of specialists in other areas such as residential property, property investing, commercial property and development. This ensures that clients of the Pure Advisory Group have the peace of mind that they are receiving independent advice across all areas of their finances.

If you have any questions or subjects that you wish to ask to feature in future editions please get in touch via email.
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Article By Stuart d’Ivry

April 10th, 2024

Originally from Pembrokeshire, Stuart gained a BSc honors degree in economics from Cardiff Business School, studying accounting and management. In recent years Stuart has extended his knowledge of the Independent market, interviewing fund managers and consistently sourcing the best possible solutions for his clients.

Stuart began his career in 2003 as a graduate at NatWest, immediately he moved into premier banking. Then in 2012, Stuart joined Coutts Wales as one of four Associate Directors in Wales. Over four years at Coutts, he advised professionals, entrepreneurs, and sportspeople. For seven months, Stuart was a lending specialist to professionals and clients in sport and entertainment. Based in London, his role oversaw lending volumes in excess of £34 million. As a Director of Pure Wealth Stuart will be able to ensure his knowledge and expertise are offered throughout the process when planning client’s goals and objectives.

Outside work, Stuart enjoys travelling and spending time with his family. He is the treasurer of the local squash team and is slowly learning to play golf.

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